Which of the Following Is an Example of Moral Hazard

question 133

Multiple Choice

Which of the following is an example of moral hazard?

• A) Only people with very high risk of default on loans borrow from banks.
• B) Drivers have less incentive to avoid accidents after getting auto insurance.
• C) When one bank fails, other banks become more cautious in lending.
• D) People living along the Gulf Coast are more likely to buy flood insurance.

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Definitions:

Safety Roadblock

A barrier or measure implemented to enhance safety by preventing accidents or unsafe situations.

Seat Belt

A safety device in vehicles, designed to secure the occupant against harmful movement that may result during a collision or a sudden stop.

Bull's Eye

The center of a target, often used in the context of achieving precision or pinpoint accuracy.

Probability

A measure of how likely an event is to occur, expressed as a number between 0 and 1.