Banks Use Credit Rationing Rather Than Simply Raising the Interest

question 40

Multiple Choice

Banks use credit rationing rather than simply raising the interest rate charged borrowers with higher default risks because

• A)of fear of adverse selection problems.
• B)of interest rate ceilings in many states.
• C)of fear of offending the loan applicants.
• D)use of credit rationing is encouraged by the Federal Reserve.

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Definitions:

Placenta

An organ that develops in the uterus during pregnancy, providing oxygen and nutrients to the growing baby and removing waste products.

Labor

The process of working or the effort expended on a particular task; also refers to childbirth process.

Allele

A variant form of a gene that arises due to mutation and can be found at a specific place on a chromosome.

Gene

A basic unit of heredity in a living organism that is made up of DNA and positioned on a chromosome; genes contain the information needed to build and maintain an organism's cells and pass traits to offspring.