Although Restrictive Covenants Can Potentially Reduce Moral Hazard,a Problem with Restrictive

question 112

Multiple Choice

Although restrictive covenants can potentially reduce moral hazard,a problem with restrictive covenants is that

• A) borrowers may find loopholes that make the covenants ineffective.
• B) they are costly to monitor and enforce.
• C) too many resources may be devoted to monitoring and enforcing them, as debtholders duplicate others' monitoring and enforcement efforts.
• D) all of the above.
• E) only A and B of the above.

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Definitions:

Consumption

The action of using up a good or service, typically one that satisfies human desires or needs.

Units

Standardized quantities used to measure, count, or quantify objects or phenomena.

Good X

A placeholder term commonly used in economics to refer to a generic good or product involved in an analysis or example.

Good Y

A hypothetical product used in economics to model consumer choice, market interactions, or other economic scenarios alongside another good, typically referred to as Good X.