Moral Hazard Problems Arise When

question 114

Multiple Choice

Moral hazard problems arise when

• A) lenders have difficulty in distinguishing between good and lemon firms.
• B) a downturn in economic activity makes repaying loans difficult for borrowers.
• C) borrowers have an incentive to act in ways that do not reflect the lender's interests.
• D) borrowers default on loans.

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Definitions:

Accounts Payable

Liabilities or amounts owed by a company to creditors for goods and services that have been purchased on credit but not yet paid for.

Journal

A chronological record where financial transactions are initially recorded using the double-entry accounting system before being transferred to accounts in the ledger.

Chronological Order

This is the arrangement of events, or information, according to the time sequence in which they occurred or were created.

Account Number Order

The sequence or arrangement of account numbers, often used in organizing financial records or transactions for easy access and reference.