The Use of Collateral

question 42

Multiple Choice

The use of collateral

• A)allows banks to charge higher interest rates on loans.
• B)makes it more costly for borrowers to take advantage of their asymmetric information.
• C)makes it more costly for lenders to take advantage of their asymmetric information.
• D)has important tax implications for both borrowers and lenders.

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Definitions:

Illusion of Invulnerability

An inflated belief in one's own ability to avoid dangers or risks, often leading to increased risk-taking behavior.

Consensus

A general agreement or shared opinion among a group of people.

Ingroup Bias

The inclination to prefer individuals from one's own group over those from outside groups, frequently resulting in bias and unfair treatment.

Groupthink

A phenomenon where the desire for harmony or conformity in a group results in an irrational or dysfunctional decision-making outcome.