A common argument in favor of government rescues of large banks is that rescues can

Question

Quizplus · Accepted Answer

A) Reducing systemic risk in the financial system is a primary reason for government rescues of large banks. These rescues are often justified by the need to prevent a domino effect where the failure of one large bank could lead to widespread instability in the financial system. Choices B, C, and D do not accurately represent common arguments for government rescues. In fact, government rescues can sometimes exacerbate moral hazard (D) by encouraging banks to take on more risk, knowing they might be bailed out.

A Common Argument in Favor of Government Rescues of Large