Asked by Jo Anne De Leon on Sep 24, 2024

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​Economists disagree with constant government bailouts of large,struggling companies because it can give a rise to

A) ​Moral hazard
B) Adverse selection
C) Lazy managers
D) ​None of the above

Moral Hazard

A situation where one party is more likely to take risks because another party bears the consequences of those risks, often arising in insurance and finance contexts.

Government Bailouts

Financial support provided by the government to prevent the failure of a struggling company or industry, often to stabilize the economy and preserve jobs.

Struggling Companies

Firms that are facing financial difficulties or are unable to achieve desired business performance.

  • Comprehend the principle of moral hazard, encapsulating its origins and effects.
  • Analyze the impact of regulatory and policy measures on moral hazard and adverse selection.
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MH
Marisa Heviaabout 14 hours ago
Final Answer :
A
Explanation :
Constant government bailouts of large, struggling companies can create moral hazard, which refers to the idea that individuals or companies may take on greater risks or engage in reckless behavior knowing that the government will bail them out if they fail. This can create a situation where companies are not held responsible for their actions or decisions, leading to a distorted market and potentially even more failures. Adverse selection and lazy managers are not directly related to the issue of government bailouts.