Which of the Following Is an Example of How Incentive

question 497

Multiple Choice

Which of the following is an example of how incentive structures contributed to the collapse of investment banks?

• A) The bonus structure of most executives was tied to long-term profitability.
• B) The ratings agencies were paid attractive fees by investment banks seeking high ratings for their securities.
• C) Mortgage-backed securities were closely scrutinized in order to minimize risk and obtain higher ratings.
• D) Despite SEC regulations, investment banks kept leverage ratios low in order to increase profits.

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Definitions:

Physiological Needs

Basic bodily requirements for human survival, such as air, food, water, shelter, and clothing, according to Maslow's hierarchy of needs.

Self-Esteem

A person's overall subjective sense of personal worth or value, encompassing beliefs about oneself as well as emotional states.

William James

A pioneering American psychologist and philosopher recognized for his significant contributions to psychology and the philosophy of pragmatism.

Expands

To increase in size, volume, quantity, or scope.