245 $
© 2014 Pearson Canada Inc.$
When the value of loans begins to drop, the net worth of financial institutions falls causing
them to cut back on lending in a process called ____.
A) deflation
B) releveraging
C) capitulation
D) deleveraging
Answer: D
Diff: 2 Type: MC Page Ref: 182
Skill: Recall
Objective List: 9.2 Explain how increases in adverse selection and moral hazard cause financial
crises
When financial institutions go on a lending spree and expand their lending at a rapid pace they
are participating in a ____.
A) credit bust
B) credit boom
C) deleveraging
D) market race
Answer: B
Diff: 1 Type: MC Page Ref: 182
Skill: Recall
Objective List: 9.2 Explain how increases in adverse selection and moral hazard cause financial
crises
When financial intermediaries deleverage, firms cannot fund investment opportunities
resulting in ____.
A) a contraction of economic activity
B) an economic boom
C) an increased opportunity for growth
D) a call for government regulation
Answer: A
Diff: 2 Type: MC Page Ref: 182 - 183
Skill: Applied
Objective List: 9.2 Explain how increases in adverse selection and moral hazard cause financial
crises
A decline in asset prices can lead to ____.
A) worsening adverse selection and moral hazard problems
B) declining uncertainty
C) increased economic activity
D) anticipated increase in the price level
Answer: A
Diff: 1 Type: MC Page Ref: 183
Skill: Recall
Objective List: 9.1 Discuss the factors that lead to financial crises