the economics of money, banking, and financial markets

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13. 
    

    When bad drivers line up to purchase collision insurance, automobile insurers are subject to
    the ____.
    A) moral hazard problem
    B) adverse selection problem
    C) assigned risk problem
    D) ill queue problem
    Answer: B
    Diff: 1 Type: MC Page Ref: 213
    Skill: Applied
    Objective List: 10.1 Explain bank regulation in the context of asymmetric information problems

    
    


14. 
    

    Deposit insurance is only one type of government safety net. All of the following are types of
    government support for troubled financial institutions except ____.
    A) forgiving tax debt
    B) lending from the central bank
    C) lending directly from the government's treasury department
    D) nationalizing and guaranteeing that all creditors will be repaid their loans in full
    Answer: A
    Diff: 3 Type: MC Page Ref: 212 - 213
    Skill: Recall
    Objective List: 10.1 Explain bank regulation in the context of asymmetric information problems

    
    


15. 
    

    Although the CDIC was created to prevent bank failures, its existence encourages banks to
    ____.
    A) take too much risk
    B) hold too much capital
    C) open too many branches
    D) buy too much stock
    Answer: A
    Diff: 1 Type: MC Page Ref: 213
    Skill: Recall
    Objective List: 10.1 Explain bank regulation in the context of asymmetric information problems

    
    


16. 
    

    A system of deposit insurance ____.
    A) attracts risk-taking entrepreneurs into the banking industry
    B) encourages bank managers to decrease risk
    C) increases the incentives of depositors to monitor the riskiness of their bank's asset portfolio
    D) increases the likelihood of bank runs
    Answer: A
    Diff: 1 Type: MC Page Ref: 213
    Skill: Recall
    Objective List: 10.1 Explain bank regulation in the context of asymmetric information problems