Which of the Following Reforms Would Reduce the Likelihood of a Future

question 378

Multiple Choice

Which of the following reforms would reduce the likelihood of a future financial crisis?

• A) increased regulations that would make it more difficult for lenders to foreclose on borrowers who are delinquent on mortgage payments
• B) expansion of government-sponsored lending in order to make loanable funds more readily available to sub-prime borrowers
• C) institutional changes that would strengthen the property rights of shareholders and provide financial managers with a stronger incentive to pursue long-run objectives
• D) frequent regulatory changes in order to search for and find the combination that would be most effective

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Definitions:

Economic Profits

Profits exceeding the opportunity costs of all resources used in production, including the cost of capital.

Marginal Analysis

The examination of the benefits and costs of choosing one more or one less unit of a good or service.

Implicit Costs

The opportunity costs of using resources owned by the firm for its own production instead of selling or renting them to others.

Interest Rate

The price, calculated as a percentage of the amount borrowed, that a lender charges a borrower for the use of their savings for one year.