In the Market for Automobile Insurance, Moral Hazard Implies That

question 69

Multiple Choice

In the market for automobile insurance, moral hazard implies that

• A) those who are insured might take greater risks.
• B) those who are uninsured might take greater risks.
• C) insured and uninsured alike will take greater risks.
• D) drivers with greater risks are more likely to buy insurance.

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Definitions:

Dodd-Frank Reform Act

A comprehensive piece of financial regulation passed in 2010 in the United States, aimed at preventing the recurrence of financial crises through increased regulation.

Capital Requirements

The minimum amount of capital a bank or other financial institution must hold as required by its financial regulator.

Derivatives Market

A financial market for derivative securities like futures and options, where assets are based on the value of other underlying financial instruments.

TED Spread

The difference between the interest rates on three-month U.S. Treasury bills and three-month Eurodollars having identical expiration dates, serving as an indicator of credit risk in the general economy.