A sharp stock market decline increases moral hazard incentives
A)since borrowing firms have less to lose if their investments fail.
B)because it is immoral to profit from someone's loss.
C)since lenders are more willing to make loans.
D)reducing uncertainty in the economy and increasing market efficiency.

Question

Quizplus · Accepted Answer

A sharp stock market decline can lead borrowing firms to believe that they have less to lose if their investments fail, which increases their moral hazard incentives. This can result in riskier investments and behaviors, potentially causing further instability in the market.

A Sharp Stock Market Decline Increases Moral Hazard Incentives