Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as
A) stock prices declined to 10 percent of their levels in 1929.
B) banks failed.
C) the aggregate price level declined.
D) a result of all of the above.
E) a result of A and B of the above.

Question

Quizplus · Accepted Answer

The adverse selection and moral hazard problems increased during the early years of the Great Depression due to a combination of factors, including the decline of stock prices to 10 percent of their levels in 1929, the failure of banks, and the aggregate price level decline. All of these factors led to increased uncertainty and risk, making adverse selection and moral hazard more prevalent in various economic activities.

Adverse Selection and Moral Hazard Problems Increased in Magnitude During