Banks Use Credit Rationing Rather Than Simply Raising the Interest

question 138

Multiple Choice

Banks use credit rationing rather than simply raising the interest rate charged to borrowers with higher default risks because

• A) of fear of adverse selection problems.
• B) of interest rate ceilings in many states.
• C) of fear of offending the loan applicants.
• D) use of credit rationing is encouraged by the Federal Reserve.

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