The substantial risks taken by financial intermediaries like Sallie Mae because they are insured are examples of what economists refer to as:
A)sub-prime behavior.
B)asymmetric information.
C)moral hazard.
D)countercyclical policy.

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where an insured party may take excessive risks because they do not bear the full cost of their actions, knowing that they will be protected by insurance. This is precisely what happens when financial intermediaries take on substantial risks because they are insured, such as Sallie Mae in this case.

The Substantial Risks Taken by Financial Intermediaries Like Sallie Mae