Which of the following arises when the knowledge that IMF rescue packages are possible leads lenders to be less careful about their international lending practices?
A)Global contagion
B)Moral hazard
C)Debt overhang
D)Debt restructuring

Question

Quizplus · Accepted Answer

The term "moral hazard" refers to the idea that people or institutions may take on more risk because they know they will be protected from the consequences of their actions by some form of insurance or guarantee. In the case of IMF rescue packages, lenders may be less careful about their international lending practices because they know that the IMF can step in and bail them out if something goes wrong. This creates a moral hazard problem, as it encourages lenders to engage in riskier behavior than they otherwise would.

Which of the Following Arises When the Knowledge That IMF