Bank examinations by the FDIC help reduce the ________ problem, ...

[burton19126]

Bank examinations by the FDIC help reduce the ________ problem, by preventing bank managers from allocating funds already obtained from depositors to non-creditworthy loans.
 
  A) adverse selection B) moral hazard C) contrary selection D) principled hazard

Question 2

Describe the relationship illustrated by the Laffer curve.
 
  What will be an ideal response?

[fdliggud]

Answer to Question 1

B

Answer to Question 2

The Laffer curve illustrates the relationship between tax rates and tax revenues. The Laffer curve shows that high tax rates could lead to lower tax revenues if economic activity is severely discouraged, and lower tax rates could actually lead to higher tax revenues.