Financial Markets Lesson 3 Quiz Answer
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Lesson #3 Quiz
Q1) Which of these best describes risk pooling?
- Insurance companies must avoid situations whereby customers are incentivized to intentionally cause an incident (e.g. burning their house down)
- Sick people are more likely to sign up for health insurance, and healthy people will not purchase the policy because this will make the premium more expensive
- If individual events are not independent, risk can be decreased by averaging across all of the events
- If individual events are independent, risk can be decreased by averaging across all of the events
Q2) Which of the following was NOT a factor which led to the proliferation of life insurance?
- Insurance salespeople
- Increased life expectancy
- New sales pitches
- Statistical data on life expectancy
Q3) What happens in the United States if your insurance company goes bankrupt?
- Consumers are insured from insurance company failure at the state level
- There is no protection from the government against insurance company failure
- Insurance companies are partially owned by the government, and thus are not allowed to fail.
- Just like the FDIC protects consumers from bank failures, the federal government insures against insurance company failures
Q4) What problem does the US Affordable Care Act (“Obamacare”) attempt to address and how does it do so?
- It addresses selection bias by creating a healthcare system which is fully publicly-funded.
- It addresses moral hazard by forcing hospitals to provide emergency services to those who cannot pay for it.
- It addresses moral hazard by allowing hospitals to refuse treatment to those who cannot pay for it.
- It addresses selection bias by forcing everybody to buy health insurance or else face a tax penalty.
Q5) One of the main reasons why many homeowners did not have flood insurance before the advent of Hurricane Katrina in 2005 was:
- Many homeowners were relying on the government instead.
- Many homeowners were not aware that flood insurance existed in the first place.
- Homeowners thought that the likelihood of a flood was too low to justify buying a flood insurance.
- Insurance premiums in Louisiana went up by 70% between 1997-2005, causing many people to cancel their insurance.
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