Soft budget constraints will lead to
A)inefficiency
B)quick responses to changes in supply and demand
C)good investment decisions
D)high product quality
E)managers eager to satisfy consumer demand rather than production quotas

Question

Quizplus · Accepted Answer

Soft budget constraints mean that a company is not held strictly accountable for their budget and can expect to receive financial support or bailouts even if they overspend. This can lead to inefficiency as there is less motivation for the company to control costs and make effective use of resources. Soft budget constraints can also lead to moral hazard, where managers take on risky investments or projects without considering the financial consequences, as they believe that they will always receive support from their superiors in the form of financial aid.

Soft Budget Constraints Will Lead to