Question

The too big to fall policy of the Fed, whereby some banks are bailed out if they are in danger of falling because they are
Pigovian taxes Multiple Choice are used to correct negative externalities. are a form of income tax. oo are primarily designe
A positive externality or spillover benefit occurs when Multiple Choice the benefits associated with a product exceed those a
A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the de
In moving along a supply curve, which of the following is not held constant? Multiple Choice O expectations about the future
Quantity Demanded Quantity Supplied Price $7 8 7 5 9 3 5 1024 11 Refer to the above table. If supply decreased by 2 units at
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Answer #1

Question 1

The "too big to fail" policy of Fed gives an incentive to big banks to undertake risky investment as they know that they will be bailed out by the Fed if their investments fail and they are on the verge of collapse.

When a person undertake undue risk because of insurance cushion then such behavior is termed as moral hazard.

So,

This bailing out of big banks for the safety of the financial system leads to moral hazard problem.

Hence, the correct answer is the option (4) [Moral Hazard].

Note -: As HOMEWORKLIB Answering Policy, when more than 1 question is posted, 1st question is answered with complete explanation.

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