Economists discourage homeowner bailouts because
A)They encourage irresponsible borrowings
B)It increases moral hazard among borrowers
C)It punishes responsible borrowers
D)All of the above

Question

​Economists discourage homeowner bailouts because
A)​They encourage irresponsible borrowings
B)It increases moral hazard among borrowers
C)It punishes responsible borrowers
D)​All of the above

Quizplus · Accepted Answer

Several reasons exist for why economists discourage homeowner bailouts. Firstly, when the government bails out homeowners who took out mortgages they can't afford, it can encourage irresponsible borrowing. This means that people might be more willing to take out loans they can't afford in the hope that the government will bail them out if things go wrong. Secondly, homeowner bailouts can increase moral hazard among borrowers. Essentially, moral hazard is the idea that people may take greater risks knowing that they won't be held fully accountable for their actions. Finally, rescuing irresponsible borrowers with a bailout can punish responsible borrowers who took on reasonable loans and paid them off on time.

​Economists Discourage Homeowner Bailouts Because

Economists Discourage Homeowner Bailouts Because