Government loan guarantees are risk free and costless means for helping struggling firms.

Question

Quizplus · Accepted Answer

Government loan guarantees involve the government taking on some or all of the risk of a loan, meaning that if the borrower defaults, the government must cover the cost. This carries a cost for the government and taxpayers, as well as a potential moral hazard for the borrower to take on more risk than they otherwise would. Therefore, loan guarantees are not a risk-free or costless means of supporting struggling firms.

Government Loan Guarantees Are Risk Free and Costless Means for Helping