As a Result of a Recession, the Default Risk Increases

question 47

Multiple Choice

As a result of a recession, the default risk increases.How does this change affect the loanable funds market?

• A)There is a rightward shift of the supply of loanable funds curve.
• B)There is a rightward shift of the demand for loanable funds curve.
• C)There is a movement up along the supply of loanable funds curve.
• D)There is a leftward shift of the supply of loanable funds curve.
• E)There is a movement down along the demand for loanable funds curve.

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Definitions:

Adverse Selection

This occurs when there is a lack of symmetric information prior to a deal, leading parties with higher risk to be more likely to engage in an agreement, notably impacting insurance and finance markets.

Reckless Drivers

Individuals who operate vehicles in a careless or heedless manner without regard for the rules of the road or the safety of others.

Safety Devices

Tools or technologies designed to prevent accidents, injuries, or other hazardous outcomes in various environments.

Screen

To evaluate or assess something or someone in order to make a decision, often used in contexts like employment, investment, or healthcare.