Some economists are concerned that the ﬁnancial rescue provided by the TARP will encourage ﬁnancial investors and ﬁrms to take on greater risks in the future. This is an example of

Question

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The concern about the TARP encouraging greater risk-taking in the future is indicative of moral hazard, which is the concept that individuals or organizations are more likely to take risks when they are insulated from the potential negative consequences of those risks. In this case, the bailout provided by the TARP may lead to a sense of security that enables financial investors and firms to pursue riskier strategies with the expectation that they will be bailed out again if things go wrong.

Some Economists Are Concerned That the ﬁNancial Rescue Provided by the TARP