Question

The following is an example of the moral-hazard problem: Homebuyers do not properly evaluate the risks involved in buying a home because they are assuming government will bail them out of a bad mortgage as it has done before.
T & F

Answer 1

Answer: True

                                           

Explanation: In simple words, moral hazard refers to the situation when one party do not take proper care while being in a risky event knowing the fact that some other  party will bear the future potential loss if something wrong happens.

Insurance policies is one the major examples of moral hazard as the insured sometimes do not take proper care knowing the loss will be borne by the insurance company.

Hence from the above we can conclude that the given statement depicts moral hazard as the owners are taking too much risk knowing government will bail them out.