the economics of money, banking, and financial markets

223 #

© 2014 Pearson Canada Inc.#

4. If bad credit risks are the ones who most actively seek loans then financial intermediaries face
   the problem of ____.
   A) moral hazard
   B) adverse selection
   C) free-riding
   D) costly state verification
   Answer: B
   Diff: 2 Type: MC Page Ref: 165
   Skill: Recall
   Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
   hazard

5 ) An example of the ____ problem would be if Brian borrowed money from Sean in order
to purchase a used car and instead took a trip to Atlantic City using those funds.
A) moral hazard
B) adverse selection
C) costly state verification
D) agency
Answer: A
Diff: 2 Type: MC Page Ref: 165
Skill: Applied
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard

6. 
   

   The analysis of how asymmetric information problems affect economic behavior is called
   ____ theory.
   A) uneven
   B) parallel
   C) principal
   D) agency
   Answer: D
   Diff: 1 Type: MC Page Ref: 165
   Skill: Recall
   Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
   hazard

   
   


7. 
   

   Nobel prize winner George Akerlof is associated with the "____ problem."
   A) lemons
   B) efficient markets
   C) riskiness
   D) volatility
   Answer: A
   Diff: 1 Type: MC Page Ref: 165
   Skill: Recall
   Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
   hazard