1) The government safety net creates ________ problem because risk -loving entrepreneurs might find banking an attractive industry.

A) an adverse selection

B) a moral hazard

C) a lemons

D) a revenue

2) Since depositors, like any lender, only receive fixed payments while the bank keeps any surplus profits, they face the ________ problem that banks may take on too ________ risk.

A) adverse selection; little

B) adverse selection; much

C) moral hazard; little

D) moral hazard; much

3) Acquiring information on a bank"s activities in order to determine a bank"s risk is difficult for depositors and is another argument for government ________.

A) regulation

B) ownership

C) recall

D) forbearance

4) The existence of deposit insurance can increase the likelihood that depositors will need deposit protection, as banks with deposit insurance

A) are likely to take on greater risks than they otherwise would.

B) are likely to be too conservative, reducing the probability of turning a profit.

C) are likely to regard deposits as an unattractive source of funds due to depositors" demands for safety.

D) are placed at a competitive disadvantage in acquiring funds.