The government bailout of large institutions creates the problem of moral hazard, which means that these large ﬁrms will

Question

Quizplus · Accepted Answer

The government bailout of large institutions creates moral hazard because these institutions know that they will be bailed out if they take highly risky investments and suffer losses. This creates an incentive for them to take on more risk than they otherwise would, knowing that the taxpayer will bear the cost of any losses.

The Government Bailout of Large Institutions Creates the Problem of Moral