If a firm or an industry is considered too big to fail, it is
A)unwise to regulate it because the regulation will slow growth.
B)wise to regulate it because the regulation will make it smaller.
C)wise to regulate it because of the moral hazard problem.
D)unwise to regulate it because it is too big.

Question

Quizplus · Accepted Answer

The concept of "too big to fail" often implies that a firm or industry is so large and interconnected within the economy that its failure would be catastrophic, leading to widespread economic damage. Therefore, regulating such entities is considered wise to mitigate the moral hazard problem. Moral hazard arises when entities take on excessive risk because they believe they will be bailed out due to their importance, hence the need for regulation to prevent reckless behavior.

If a Firm or an Industry Is Considered Too Big