Question

Gustavo is a young doctor who lives in a country with a relatively inefficient legal and financial system. When Gustavo applied for a mortgago, he found that banks usually required collateral for up to 300% of the amount of the loan Why might banks require that much collateral in a financial system like Gustavo's country? O A. An inefficient legal system implios strong property rights, and collateral helps banks recoup some of their loan if the borrower defaults. O B. An inefficient legal system implies strong property rights, and under such a strong system, collateral is more highly valued and hence more desirable. OC. An inefficient legal system implies weak property rights but also high property values, making collateral more highly valued and hence more desirable. OD. An inefficient legal system implies weak property rights, and collateral helps banks recoup some of their loan if the borrower defaults As a result, when compared to other countries, we would expect Gustavo's nation to have O A. less investment and faster economic growth B. less investment and slower economic growth OC. more investment and slower economic growth OD. more investment and faster economic growth

Answer 1

1. The correct option is C.

In a system that is inefficient legally and financially, the property rights are also weak, but since they have a high value and they make collateral more highly valued and more desirable, this is the reason banks might require this much collateral in a financial system like Gustave's country.

2. The correct option is B.

As a result when compared to other countries, we would expect Gustavo's nation to have less investment and slower economic growth.

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