One reason for the controversy surrounding the decision by the European Central Bank to buy Greek bonds was that
A) it may increase moral hazard by encouraging other European governments to issue more debt than private investors were willing to buy.
B) it may increase adverse selection by encouraging other European governments to issue more debt than private investors were willing to buy.
C) it may result in higher risk premiums as private investors anticipate a default by Greece.
D) it may worsen the Greek recession by increasing Greek interest rates.

Question

Quizplus · Accepted Answer

The decision to buy Greek bonds may increase moral hazard by encouraging other European governments to issue more debt, as they may believe that the ECB will always come to their rescue. This can result in an unsustainable debt burden for the ECB, leading to a crisis.

One Reason for the Controversy Surrounding the Decision by the European