1) Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the
A) too big to fail effect.
B) moral hazard problem.
C) adverse selection problem.
D) contagion effect.
2) The contagion effect refers to the fact that
A) deposit insurance has eliminated the problem of bank failures.
B) bank runs involve only sound banks.
C) bank runs involve only insolvent banks.
D) the failure of one bank can hasten the failure of other banks.
3) During the boom years of the 1920s, bank failures were quite
A) uncommon, averaging less than 30 per year.
B) uncommon, averaging less than 100 per year.
C) common, averaging about 600 per year.
D) common, averaging about 1000 per year.