The Federal Reserve implemented a series of new policies and tools in response to the 2007-2008 financial crisis and recession. Many economists believe these policies helped avert another Great Depression, but exacerbated what problem in the financial system?
A) Moral hazard.
B) Liquidity trap.
C) Cyclical asymmetry.
D) Quantitative easing.

Question

Quizplus · Accepted Answer

The Federal Reserve's interventions, such as bailouts and guarantees, may have exacerbated moral hazard by encouraging risky behavior, as financial institutions might expect future rescues.

The Federal Reserve Implemented a Series of New Policies and Tools