Moral hazard is:
A. when one party acts in a way that is ethically outside the norm in a market exchange.
B. when individuals make exchanges in the grey market.
C. the tendency for people to behave in a riskier way when they're insured.
D. when both parties act in a way that is ethically outside the norm in a market exchange.
Answer: C
You might also like to view...
Pollution is a by-product of some production processes, so on this count real GDP as measured
A) is adjusted downward to take into account the pollution. B) is adjusted upward to take into account the expenditures that will be made in the future to clean up the pollution. C) tends to overstate economic welfare. D) tends to understate economic welfare.
For each of the following situations, choose a fiscal policy and explain how it could be used to correct the economic problem
a. Real GDP is below potential GDP following a financial market crisis. b. A positive demand shock increases aggregate expenditure beyond the full employment level and leads to fears of rising inflation. c. The economy is in a recession due to rising defaults on mortgages following the bursting of a housing bubble.