Which of These Is(are) True? I

question 110

Multiple Choice

Which of these is(are) true? I. A leveraged account magnifies both gains and losses.
II) The risk of highly leveraged investments is that a small decrease in price can wipe out one's account.
III) Subprime mortgage packages were seen as low-risk investments, leading many investors to borrow money at the low prevailing interest rates to purchase greater quantities.

• A) I only
• B) II only
• C) I and II
• D) I, II, and III

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Definitions:

External Benefits

Positive effects that an activity or transaction has on individuals or entities who are not directly involved in the activity, often justifying government intervention or subsidies.

Allocative Efficiency

A state of resource allocation where resources are distributed according to consumer preferences, leading to optimal production levels and pricing.

Corrective Tax

A tax designed to encourage private decision makers to take into account the social costs that arise from a negative externality.

Allocative Efficiency

A state where resources are allocated in a way that maximizes the net benefit to society, with products being produced at a quantity where the price equals marginal cost.