Why Do Higher Interest Rates Increase Adverse Selection Problems in the Loan

question 1

Multiple Choice

Why do higher interest rates increase adverse selection problems in the loan market?

• A)Higher interest rates reduce the gains from economies of scale.
• B)As interest rates rise, the creditworthiness of the average loan applicant declines.
• C)Higher interest rates reduce information problems in the loan market.
• D)At higher interest rates fewer investment projects are profitable.

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