Question: Question and Exercise 1 2 - 0 8 Moral hazard arises when eBook people's actions do not reflect the full cost of their actions. people

Question and Exercise

12 - 08

Moral hazard arises when

eBook

people's actions do not reflect the full cost of their actions.

people use innovation, technology, or political pressure to circumvent government regulation.

financial institutions use innovation, technology, or political pressure to circumvent government regulation.

people follow the human tendency to go along with the crowd.

References

How does deposit insurance lead to t

?

With deposit insurance, people could put their money into banks that made excessively risky loans without fear of losing their money should the bank fall.

With deposit insurance, banks can avold reserve requirements by insuring customer deposits with the FDIC.

With deposit insurance, homeowners facing foreclosure can qualify for government subsidized loans or a reduction in princlpal balance.

With deposit insurance, banks can invest in the securities market without fear of losing their money should the housing market crash.

Question and Exercise 1 2 - 0 8 Moral hazard

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