The tool used by the Federal Reserve System to influence the economy and behavior of banks is known as moral hazard.

Question

Quizplus · Accepted Answer

Moral hazard refers to the risk that arises when an individual or institution behaves differently than they would have if they had to bear the full risk of their actions. The tool used by the Federal Reserve System to influence the economy and behavior of banks is actually monetary policy, which involves adjusting interest rates and controlling the money supply.

The Tool Used by the Federal Reserve System to Influence