Macro - Financial crises

The notion that lenders must select from a pool of bad credit risks, because the most undesirable borrowers are those that most actively seek out a loan is known as the...

• moral hazard problem

• ornamental torsion problem

• adverse selection problem

• asymmetric innovation problem

Which of the following best illustrates the adverse selection problem?

• a professional football team that consistently drafts poor players

• an economic agent who engages in risky behavior once a loan is received

• an individual who hides a pre-existing condition from a health insurer

• an individual who experiences a loss of income by not working while attending college

Which of the following best illustrates the problem of moral hazard?

• a professional baseball team that consistently drafts poor players

• an individual that is hiding a pre-existing condition from a health insurance provider

• an increase in the level of one's income will lead to a decrease in demand for inferior goods

• an economic agent that engages in risky behavior once a loan contract is signed

Channeling funds to individuals with productive investment opportunities is the function of...

• the financial sector

• state and local government

• the central bank

• state, local and federal governments

The risk that a borrower has more information about their previous behavior than a potential lender is known as the...

• moral hazard problem

• adverse selection problem

• time-space discontinuity

• tertiary behavior problem

The risk that a borrower has a greater understanding about their potential future behavior than a potential lender is known as...

• the problem of adverse selection

• the problem of moral hazard

• ornamental torsion

• the asymmetric innovation problem

Let's say you are considering buying a car and you want to know the history of the vehicle’s previous accidents and problems. When you are told that this information is not available, you decide not to buy the car. In the task, we see an example for...

• asset-price bubble

• adverse selection

• moral hazard

• financial innovation

An early sign that financial innovation might be leading toward a financial crisis is...

• deleveraging

• a bank panic

• a credit boom

• debt deflation

The adverse consequences of debt deflation are most evident...

• in the expansion of credit to high-risk borrowers

• on the balance sheets of nonfinancial businesses

• in a sharp decline in the real interest rate

• on the balance sheets of financial businesses

An asset-price bubble entails...

• increasing the value of one's assets to cover liability losses

• an increase in asset prices above their fundamental economic value

• reducing the number of participants in the underlying financial derivatives market

• an economic skins game