Question

Banks are typically located in grandiose buildings to leave a trustworthy impression on their depositors. What economic concept can best explain banks’ motives?

(A) moral hazard.
(B) signaling.
(C) risk aversion.
(D) screening.

Answer 1

Answer: B) signaling

Explanation: The economic concept that best explains banks' motives for locating in grandiose buildings is signaling. Signaling is a way for a company to convey information about its quality to its customers. By locating in grandiose buildings, banks are signaling to their depositors that they are financially stable and trustworthy, which can attract more customers and increase deposits.