The concept of 'Moral Hazard' in the context of deposit insurance arises because: MCQ with Answer and Explanation

The concept of 'Moral Hazard' in the context of deposit insurance arises because:
A. Insurance always reduces risk-taking
B. Depositors become more careful about bank risk
C. Depositors monitor banks more intensively
D. Banks may take excessive risks knowing that deposits are insured
Answer: Option D
Solution (By JKSSB Mock Tests)
Deposit insurance can create moral hazard by reducing depositors’ incentive to monitor banks and by encouraging banks to take greater risks because the downside is partly borne by the insurer.

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Practice More Economy Set 1 Questions

Question #1
The 'Model APMC Act' was circulated by the central government in which year?
A. 2000
B. 2010
C. 2006
D. 2003

Correct Answer: Option D


Explanation:
The Model APMC Act was circulated in 2003 to promote reforms in agricultural marketing.

This question belongs to: Economy GK Economy Set 1
Question #2
Hyperinflation is characterized by:
A. extremely rapid and out-of-control rise in prices
B. falling prices
C. stable prices
D. slow price rise

Correct Answer: Option A


Explanation:
Hyperinflation is extremely rapid and uncontrollable price inflation.

This question belongs to: Economy GK Economy Set 1
Question #3
The yield on a bond and its price have an inverse relationship. If market interest rates rise, the price of an existing bond:
A. rises
B. falls
C. remains unchanged
D. becomes zero

Correct Answer: Option B


Explanation:
When market interest rates rise, existing bond prices fall because their fixed coupon becomes less attractive.

This question belongs to: Economy GK Economy Set 1