For a developing country, a _____ can foster economic instability because it can result in a lending boom and ______ by banks, which promotes a financial crisis.
A) capital inflow, excessive risk taking
B) capital inflow, inadequate risk taking
C) capital outflow, excessive risk taking
D) capital outflow, inadequate risk taking

Question

Quizplus · Accepted Answer

A capital inflow can lead to excessive risk taking by banks as they seek to take advantage of the influx of funds. This can lead to a lending boom, which can create an economic bubble that eventually bursts, leading to a financial crisis.

For a Developing Country, a _____ Can Foster Economic Instability