Insurance companies charge annual premiums to collect revenue, which they then use to pay customers who file claims for damages they incur. As a result of the moral hazard problem (1) what is the effect on the percentage of policy holders making claims, and (2) what is the effect on the average premium charged when compared to a world with no moral hazard problem?
a. The percentage of policy holders making claims is higher; average annual premiums are lower.
b. The percentage of policy holders making claims is lower; average annual premiums are lower.
c. The percentage of policy holders making claims is higher; average annual premiums are higher.
d. The percentage of policy holders making claims is lower; average annual premiums are higher.
c
You might also like to view...
Assume a contractionary monetary policy causes real interest rates in the US to increase relative to Japan. In the short run, the value of the US dollar, the value of the Japanese yen, and the US balance of trade will most likely change in which of the following ways?
a. appreciate; appreciate; move toward deficit b. appreciate; depreciate; move toward deficit c. appreciate; depreciate; move toward surplus d. depreciate; depreciate; move toward surplus e. no change; appreciate; move toward deficit
Until the year 2000, the Humphrey-Hawkins Act directed the Fed to pursue all of the following, except
A) maximum employment. B) price stability. C) high economic growth. D) moderate long-term interest rates.