Because There Is an Imbalance of Information in a Lending

question 23

Essay

Because there is an imbalance of information in a lending situation,we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems.

---

Definitions:

Emil Kraepelin

A German psychiatrist who made significant contributions to the classification of mental disorders and is considered a founding figure of modern psychiatry.

Diagnostic and Statistical Manual

A publication by the American Psychiatric Association that provides a common language and standard criteria for the classification of mental disorders.

Psychological Disorders

Mental disorders characterized by patterns of behavior or thinking that cause significant distress or impairment in social, occupational, or other important areas of functioning.

Test-Retest Reliability

The consistency of a psychological test or assessment when administered on two separate occasions to the same group of individuals.