Tom borrows $100,000 from his local bank to purchase inventory for his store for the upcoming holiday season.Tom's neighbor tells him about a get-rich-quick scheme that can take this $100,000 and triple it in a month.Tom decides to buy into this scheme figuring he can repay the bank and still have plenty left for inventory.This is an example of:

Question

Quizplus · Accepted Answer

This is an example of moral hazard because Tom is taking on excessive risk with the bank's money, assuming he can triple it in a month and still repay the loan. He is not taking into account the potential consequences of losing the money in the get-rich-quick scheme and the impact it could have on his ability to repay the loan.

Tom Borrows $100,000 from His Local Bank to Purchase Inventory