Answer to Question #126620 in Economics for Chang'ondo

Question

Muchuu’s mortgage was approved by Zambia National Building Society. Muchuu however, decided to purchase a model of a car called Bugatti using the mortgage. On the other hand, Muchuu had initial plans for investing money in some risky online business. He, therefore, approached a money lending institution and applied for a loan in the name of exporting goats to Democratic Republic of Congo and his loan was also approved for such a lucrative investment by the lending institution. As a student of Principles of Economics, discuss the above scenario and make relevant comparisons and distinctions.

Answer 1

In this case Muchuu raises money from a mortgage and a loan to invest in one of the two alternatives: purchasing a model of a car or investing in some risky online business. The first alternative is less risky and is more attractive investment, which is more likely to gain profits to repay the loans.