Which of the following describes a loan type initially meant to stimulate development activity and relieve economic hardship?

The correct answer is a loan type that is designed specifically to stimulate development activity and alleviate economic hardship. A tax-exempt loan typically refers to financing mechanisms that are exempt from federal or state taxes, often used by municipalities to encourage development projects. This tax incentive can significantly reduce the cost of borrowing for the recipient, thereby promoting growth and helping economically distressed areas by making projects more financially viable.

In contrast, equity participation involves investors providing capital in exchange for a share of ownership, which doesn't focus specifically on hardship relief but rather on investment returns. Variable rate loans have interest rates that can fluctuate, which may not necessarily target economic relief. Wraparound loans are a type of secondary financing that allows a borrower to consolidate existing debt but are not inherently designed for alleviating economic hardship or stimulating development in the same way that tax-exempt financing would be.