Describe moral hazard and explain its reference to Central banks. a. How have moral hazards contributed to a financial crisis? Provide examples b. Does Central Bank make moral hazards and what are the benefits?

Describe moral hazard and explain its reference to Central banks. a. How have moral hazards contributed to a financial crisis? Provide examples b. Does Central Bank make moral hazards and what are the benefits?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 30CTQ: Explain how a company can fail when the safeguards that should be in place fail.

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Concept explainers

Financial Institutions and Federal Bank

The word financial institution is a kind of business organization that deals with the financial activities of a nation. These activities include accepting deposits, making payments, granting loans and advances, transferring funds, holding shares, providing credits, purchasing and selling foreign exchanges, investments in shares, futures commodities, and many more.

Question

1. Describe moral hazard and explain its reference to Central banks.

a. How have moral hazards contributed to a financial crisis? Provide examples

b. Does Central Bank make moral hazards and what are the benefits?

Provide 800 words response.

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Step 1: Introduce the concept of moral hazard.

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Step 2: Part 1. Describe moral hazard and explain its reference to Central banks.

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Step 3: Part a. Explain how have moral hazards contributed to a financial crisis

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Step 4: Determine whether Central Bank make moral hazards and what are the benefits.

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