In addition to having a direct effect on increasing adverse selection problems, increases in...

1) Factors that lead to worsening conditions in financial markets include:

A) declining interest rates.

B) unanticipated increases in the price level.

C) the deterioration in banks\" balance sheets.

D) increases in bond prices.

2) In a bank panic, the source of contagion is the

A) free-rider problem.

B) too-big-to-fail problem.

C) transactions cost problem.

D) asymmetric information problem.

3) A bank panic can lead to a severe contraction in economic activity due to

A) a decline in international trade.

B) the losses of bank shareholders.

C) the losses of bank depositors.

D) a decline in lending for productive investment.

4) In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by ________ firms\" and households\" interest payments, thereby ________ their cash flow.

A) increasing; increasing

B) increasing; decreasing

C) decreasing; decreasing

D) decreasing; increasing