Which of the Following Is Not True About Moral Hazard

question 129

Multiple Choice

Which of the following is not true about moral hazard?

• A)It increases the difficulty of operating private insurance markets.
• B)It increases the difficulty of operating public insurance markets.
• C)It is the tendency of people to change behavior when insured.
• D)It is the tendency of people with higher risks to buy more insurance.

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Definitions:

Payback Rule

A capital budgeting principle that evaluates an investment based on the time needed to recoup the invested capital.

Payback Cutoff

The maximum allowable period for an investment to recoup its initial cost, beyond which it is not considered.

NPV

Net Present Value; a calculation used to determine the present value of a series of future cash flows, less the initial investment.

Conventional Cash Flow

A pattern of cash flow over time where an initial outlay is followed by a series of positive cash inflows.