The World Bank Has Extended a Loan to Country X

question 43

Multiple Choice

The World Bank has extended a loan to Country X to build a new toll road and counts on the repayment of the loan from the collected tolls. After the funds have been transferred to the country, the government decides to spend the money to build a new presidential palace. This is an example of

• A) hostile selection.
• B) adverse selection.
• C) moral hazard.
• D) government risk.

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