Loan Guarantees Must Be Provided For; the Amount of the Provision

question 1

True/False

Loan guarantees must be provided for; the amount of the provision is the probability of payout multiplied by the fair value of the loan guarantee.

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Definitions:

Efficient

Describes a process that achieves its goals with the least waste of time and effort.

Lump-Sum Tax

A tax that is the same amount for every person.

Deadweight Loss

A cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium.

Ability-To-Pay Principle

A principle in taxation that holds that taxes should be levied according to an individual's or entity's capacity to pay.