The Key Reason Why Loans from Financial Institutions and Other

question 4

Multiple Choice

The key reason why loans from financial institutions and other forms of borrowing are not perfect substitutes is that

• A)information problems exist in financial markets.
• B)banks are legally required to offer loans at rates below those prevailing in the bond market.
• C)the tax treatment of loans from financial institutions is different from the tax treatment of loans obtained in the bond market.
• D)financial institutions have great difficulty in evaluating the creditworthiness of all but the largest borrowers.

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Definitions:

Novel Stimulus

A new or unfamiliar stimulus that has not been previously experienced by an organism, often used in experimental research to gauge response or attention.

Stimulant

A substance that increases physiological or nervous activity in the body.

Stimulus Discrimination

The ability to distinguish between different stimuli, even if they are similar, based on learned responses.

Extinction

In psychology, the gradual weakening of a conditioned response when the reinforcement is no longer provided.