What does the term "moral hazard" mean in economics?
A. Doing what is legal but not moral
B. A risk caused by insurance or bailouts encouraging bad behavior
C. A religious belief influencing business
D. Choosing between right and wrong in investment
Answer (1)
The correct answer is letter B. A risk caused by insurance or bailouts encouraging bad behaviorIn economics, a moral hazard happens when people or companies take big risks because they believe someone else (like the government) will save them if things go wrong. For example, during the Great Recession, big companies thought they were "too big to fail" and that the government would bail them out. This encouraged them to keep making risky decisions. It's like a driver who drives carelessly because he knows his car is fully insured. In the Philippines, this can also be seen in government bailouts of struggling firms, where some business owners take advantage of rescue funds instead of learning from their financial mistakes.
