Question

Which of the following is a true​ statement? A. Adverse selection occurs after a transaction has taken place in insurance markets. B. The FDIC has reduced the problem of moral hazard but not the problem of adverse selection. C. The FDIC has reduced the number of depositors who have lost​ savings, but in doing​ so, has inadvertently encouraged banks to make riskier loans. D. Moral hazard is a problem that occurs before a transaction takes place when asymmetric information is a problem.

Answer 1

C

Step-by-step explanation:

FDIC gives insurance to depositors. it promises to pay back a certain amount of the deposits of a banks customers in the case where a bank fails. As a result of this insurance banks have a greater incentive to take on more risky projects because they know that their customers would be protected even the project goes sour and the bank fails.

Due to the services of the FDIC, less depositors have lost money when a bank fails because of the insurance services they provide to depositors.