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. Depositors monitor banks more intensively
B. Insurance always reduces risk-taking
C. Depositors become more careful about bank risk
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
Which of the following is a feature of 'Multi-Sided Platforms'?
A. They are identical to traditional linear firms
B. They serve only one group of users
C. They intermediate between two or more distinct groups of users and must solve the chicken-and-egg problem of attracting both sides
D. They never exhibit network effects

Correct Answer: Option C


Explanation:
Multi-sided platforms bring together two or more distinct customer groups that need each other and whose interactions are mediated by the platform; pricing and design must balance the interests of all sides.

This question belongs to: Economy GK Economy Set 1
Question #2
The 'Gross National Product' at factor cost equals GDP at factor cost plus:
A. subsidies
B. indirect taxes
C. net factor income from abroad
D. depreciation

Correct Answer: Option C


Explanation:
GNP at factor cost = GDP at factor cost + net factor income from abroad.

This question belongs to: Economy GK Economy Set 1
Question #3
Which of the following is a major challenge for the Indian economy?
A. High level of human development across all states equally
B. Absence of informal sector
C. Complete self-sufficiency in all goods
D. Regional disparities and unemployment

Correct Answer: Option D


Explanation:
Regional disparities in development and persistent unemployment (especially youth and disguised unemployment) remain significant challenges for the Indian economy.

This question belongs to: Economy GK Economy Set 1