Credit Ratings Help with the Adverse Selection Problem Inherent in Lending

question 4

True/False

Credit ratings help with the adverse selection problem inherent in lending

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Definitions:

Externalities

Occurs when the consumption or production of a good affects someone who does not directly consume or produce that good, which can be either positive or negative.

Costs

Expenses incurred in the production of goods or in the provision of services, including labor, materials, and overheads.

Benefits

The advantages or positive outcomes gained from actions or decisions, often considered in economic, social, or health contexts.

Incentive

A reward or benefit that motivates or encourages a specific action or behavior.