The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will:

Question

Quizplus · Accepted Answer

When large firms know that the government will bail them out if they make highly risky investments, they have less of a disincentive to do so. This creates the problem of moral hazard, as firms are more likely to take on excessive risks, knowing that they will not bear the full costs of any failures.

The Government Bail-Out of Large Institutions Creates the Problem of Moral