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6. Harry opened a restaurant when the economy was strong. An economic downturn led to a recession, and his restaurant started to lose money. Harry
6. Harry opened a restaurant when the economy was strong. An economic downturn led to a recession, and his restaurant started to lose money. Harry hired an arsonist to set fire to his restaurant. The restaurant was destroyed by the fire. Harry collected from his insurance company for the fire loss and went out of business. This scenario illustrates: a. the "golden rule." b. moral hazard. e. attitudinal hazard. d. adverse selection. e. legal hazard. 7. Jack wants to purchase a new home. He will have to borrow $250,000 from Wells Fargo to help fund the purchase. As the home will serve as collateral for the loan, Wells Fargo will only loan Jack the money if Jack purchases insurance on the home. Buying insurance on the property serving as collateral for a loan as a condition of the loan illustrates which benefit of insurance to society? a. financial intermediation b. indemnification of losses c. loss control incentives d. facilitation of credit e. expenses of insurance companies 6. Harry opened a restaurant when the economy was strong. An economic downturn led to a recession, and his restaurant started to lose money. Harry hired an arsonist to set fire to his restaurant. The restaurant was destroyed by the fire. Harry collected from his insurance company for the fire loss and went out of business. This scenario illustrates: a. the "golden rule." b. moral hazard. e. attitudinal hazard. d. adverse selection. e. legal hazard. 7. Jack wants to purchase a new home. He will have to borrow $250,000 from Wells Fargo to help fund the purchase. As the home will serve as collateral for the loan, Wells Fargo will only loan Jack the money if Jack purchases insurance on the home. Buying insurance on the property serving as collateral for a loan as a condition of the loan illustrates which benefit of insurance to society? a. financial intermediation b. indemnification of losses c. loss control incentives d. facilitation of credit e. expenses of insurance companies
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