The following is an example of the moral-hazard problem: Homebuyers do not properly evaluate the risks involved in buying a home, because they are assuming the government will bail them out of a bad mortgage as it has done before.
Answer the following statement true (T) or false (F)
True
If future homeowners know that the government will rescue them if they default on their mortgages, they may not take steps to understand the risks related to their purchases. They know they are exposed to the risks, but they do not attempt to avoid it. This is the moral hazard problem.
You might also like to view...
Network externalities create a push toward:
A. perfect competition. B. government deregulation. C. foreign competition. D. natural monopoly.
Refer to the table above. When there is no investment in this private closed economy, the equilibrium level of GDP will be:
All figures below are in billions of dollars.
A. $240 billion
B. $250 billion
C. $260 billion
D. $270 billion
When using the traditional command-and-control approach to environmental regulation, the government attempts to
a. set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement b. determine the most efficient method for different industries c. make allowances for differences across industries and between firms d. set engineering standards that are applicable to all situations and does not recognize unique circumstances e. set a maximum requirement and they allows the individual firm the latitude of choosing the most efficient method
The best time for a business to purchase new equipment is when
A. interest rates are low. B. consumer demand decreases. C. job growth declines. D. the gross domestic product falls.