A Borrower Who Takes Out a Loan Usually Has Better

question 7

Multiple Choice

A borrower who takes out a loan usually has better information about the potential returns and risk of the investment projects he plans to undertake than does the lender. This inequality of information is called

• A)moral hazard.
• B)asymmetric information.
• C)noncollateralized risk.
• D)adverse selection.

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Definitions:

Great Compromise

The agreement made during the Constitutional Convention of 1787 that created a two-house legislature, balancing the representation of small and large states in Congress.

Federalist Papers

A series of 85 essays written by Alexander Hamilton, James Madison, and John Jay promoting the ratification of the United States Constitution.

Ratification

The formal approval process of a treaty, constitutional amendment, or legislative act to make it officially valid.

Constitution

The fundamental principles and established precedents according to which a state or other organization is governed.