Why Is Adverse Selection More Likely in Financial Markets When

question 20

Multiple Choice

Why is adverse selection more likely in financial markets when interest rates rise?

• A)The remaining borrowers are more likely to be risky.
• B)Higher interest rates are likely to hurt the economy.
• C)If firms have to pay higher interest rates, they may choose to use the funds differently than they first intended.
• D)Banks eliminate risky borrowers by raising interest rates.

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Definitions:

Emotionally Distant

A state or condition in which an individual is emotionally unresponsive or detached from others, often as a defense mechanism or due to psychological distress.

Perseveration Of Sameness

A resistance to change and a strict adherence to routines or repetition of specific behaviors, often observed in autism spectrum disorders.

Rigid And Repetitive Behavior

Patterns of behavior that are inflexible and consistently repeated, often seen in autism spectrum disorders.

Echolalia

The involuntary and repetitive mimicry or imitation of the vocalizations made by another person.