How can debt policies for DVC create a moral hazard?
What will be an ideal response?
If IAC or international organizations extend loans or grants to DVC they expect to be repaid. If IAC or international organizations, however, later provide assistance to DVC through debt relief or debt forgiveness, the DVC can come to expect such relief or assistance when they receive future grants or loans. This situation creates a moral hazard in which debt relief or debt forgiveness becomes the expectation when grants or loans are made and no serious effort is made to repay the grants or loans.
You might also like to view...
Explain why expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations
What will be an ideal response?
Assume that the currency—deposit ratio is 0.2 and the reserve—deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by
A) $1 million. B) $2 million. C) $3 million. D) $4 million.