Which of the following would not address the moral hazard problem?
A)Establish strict regulations of the banks
B)Design systems so that necessary financial transactions stayed within regulated banks
C)Allow the government to take over the policy-making decisions of the Federal Reserve
D)Separate banks from other financial institutions

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where one party is more likely to take risks because another party bears the cost of those risks. Options A, B, and D aim to reduce risk-taking by increasing oversight, ensuring transactions occur within a regulated framework, and separating banks from riskier financial institutions, respectively. Option C, allowing the government to take over policy-making decisions of the Federal Reserve, does not directly address the issue of moral hazard, as it focuses on who makes decisions rather than on measures to mitigate risk-taking behavior.

Which of the Following Would Not Address the Moral Hazard