If a Firm Borrows a Large Sum of Money, It

question 12

Multiple Choice

If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of:

• A) risk taking.
• B) adverse selection.
• C) poor decision making.
• D) Ricardian equivalency.
• E) moral hazard.

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Definitions:

Individualism View

A perspective emphasizing personal independence and the importance of individual self-reliance and freedom.

Business Practice

Conventional or customary commercial procedures and operations.

Pushing the Law

refers to the act of attempting to extend or apply legal boundaries and rules to their limits, often for strategic or advocacy purposes.

Procedural Justice

The fairness of the processes that lead to outcomes or decisions, fostering a sense of justice based on transparency, consistency, and impartiality.