Question

23. Which of the following regulations preserved the structure of the banking system that resulted in thousands of small banks.

A. The Federal Reserve Act of 1913
B. The Dodd-Frank act of 2010
C. The Glass-Steagall Act of 1933

D. The McFadden act of 1927

24. The current chair of the Federal A. Ben Bernanke
B. Janet Yellen
C. Alan Greenspan

D. Jerome Powell E. Jean-Luc Picard

25. Harry gets a loan to purchase a house. After buying the house, he decides to knock the building down and build a grass hut in its place, reducing the value of the property. this is an example of the, problem, and the lender can solve this by ,

1. moral hazard/requiring collateral

2. adverse selection/including covenants in the loan contract about how the property can be used.

C. moral hazard/including covenants in the loan contract about how the property can be used

D. adverse selection/requiring a credit score

Answer 1

23. Option A. The Federal Reserve Act of 1913.

The Federal Reserve Act of 1913 preserved the structure of the banking system that resulted in thousands of small banks. The Act created twelve regional reserve banks in twelve different districts. In 1913, the twelve federal reserve banks were given the ability to print money, increase employment and keep a low rate of inflation so as to ensure economic stability of the nation.

24. Option D. Jerome Powell.

Jerome Powell is the chair of the board of directors of the Federal Reserve System who was sworn in February 5, 2018.

25. Option C. moral hazard/including covenants in the loan contract about how the property can be used.

Moral hazard occurs when there is imperfect information between the two parties when there is an exchange of goods or services and after the completion of the exchange of goods or services there is a change in the behaviour of one party involved in the exchange. Here, Harry gets a loan to purchase a house and after buying the house he reduces the value of the property by knocking the building down and building a grass hut in its place. So, this is a moral hazard problem and it can be solved by including covenants in the loan contract about how the property can be used.