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If Borrowers with the Most Risky Investment Projects Seek Bank

question 137

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If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects,banks are said to face the problem of


Definitions:

Type II Error

The failure to reject a false null hypothesis or a false negative in hypothesis testing.

Significance Level

The significance level, denoted by alpha, is the threshold chosen by researchers below which a p-value must fall for results to be considered statistically significant.

Null Hypothesis

A statistical hypothesis that asserts there is no effect or no difference, and any observed deviation from this hypothesis is due to random variation.

Type II Error

A statistical error occurring when the null hypothesis is not rejected when it actually is false.

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