Governments can reduce the problem of moral hazard by:
A) requiring licenses be obtained before starting a business.
B) prosecuting fraud and malfeasance.
C) keeping interest rates low.
D) reducing corporate income tax rates.

Question

Quizplus · Accepted Answer

Prosecuting fraud and malfeasance sends a message to individuals and businesses that engage in risky behavior that there are consequences for their actions, which can reduce the likelihood of moral hazard. Requiring licenses for businesses (choice A) can be helpful in regulating certain industries, but it may not necessarily prevent moral hazard. Keeping interest rates low (choice C) and reducing corporate income tax rates (choice D) can stimulate economic growth, but they are not directly related to reducing moral hazard.

Governments Can Reduce the Problem of Moral Hazard By