An Adverse Selection Problem

question 90

Multiple Choice

An adverse selection problem

• A)increases the risk of default.
• B)decreases the risk of default.
• C)invites the borrower to engage in a riskier venture.
• D)can be resolved by the lender gaining more information about what the loan will be used for.

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Definitions:

Global Economy

The interconnected worldwide economic activities that determine the production, distribution, and consumption of goods and services.

Tax Exemption

A monetary exclusion that reduces the taxable income of an individual or organization, often granted by government policy.

Pretax Income

The total income earned by an individual or corporation before any taxes are deducted.

Tax Rebate

A refund on taxes paid, typically when the tax liability is less than the taxes paid.