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Suppose a Bank Purchases $100 of an Asset

Question 69

Multiple Choice

Suppose a bank purchases $100 of an asset. To finance this purchase, it uses $99 dollars of borrowed funds and $1 of bank capital. To what does this lead?


A) moral hazard
B) adverse selection
C) Ricardian equivalence
D) the butterfly effect
E) irrational exuberance

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