The too-big-to-fail problem is a ________ problem.
A) economic
B) regulatory
C) moral hazard
D) adverse selection

Question

Quizplus · Accepted Answer

The too-big-to-fail problem is a moral hazard problem, which occurs when companies engage in risky behavior because they know that the government will bail them out if they fail. This creates a situation where some companies become so large and interconnected with the financial system that their failure could lead to a catastrophic domino effect on the economy. This problem cannot be solved solely through economic or regulatory means and is instead a result of the incentives created by the existing system.

The Too-Big-To-Fail Problem Is a ________ Problem