Which of the following factors would be most likely to encourage investment and capital formation in a less-developed nation?
A) High and variable rates of inflation.
B) Tariffs and quotas that restrict international trade.
C) A legal system that provides for secure property rights and evenhanded enforcement of contracts.
D) High marginal tax rates.

Question

Quizplus · Accepted Answer

A legal system that provides for secure property rights and evenhanded enforcement of contracts would be most likely to encourage investment and capital formation in a less-developed nation. This provides security and stability for investors, which is essential for them to confidently risk their capital in the country. The other options given - high and variable rates of inflation, tariffs and quotas that restrict international trade, and high marginal tax rates - would likely discourage investment and capital formation as they create uncertainty and increase the costs of doing business.

Which of the Following Factors Would Be Most Likely to Encourage