Why could leverage lead to an asset price bubble?
A)It allows investors to take advantage of disinflation.
B)It takes advantage of insiders who help outsiders.
C)It increases the ability of people to purchase financial instruments.
D)It takes advantage of extrapolative expectations.

Question

Quizplus · Accepted Answer

Leverage increases the ability of individuals and institutions to purchase more financial instruments than they could with their own capital alone, potentially inflating asset prices beyond their intrinsic value and contributing to the formation of a bubble.

Why Could Leverage Lead to an Asset Price Bubble