A Lender Who Wants to Avoid the Problem of Adverse

question 51

Multiple Choice

A lender who wants to avoid the problem of adverse selection could:

• A)Charge a very high interest rate and assume all loan applicants are high risk
• B)Charge the same average interest rate to all borrowers
• C)Charge a low interest rate and make the applicant prove they warrant the low rate by providing information
• D)Only lend by issuing credit cards

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Definitions:

Positive Expectations

The belief that good things will happen in the future, which can influence behavior and attitudes in a positive way.

Placebo Effect

A beneficial effect produced by a placebo drug or treatment, which cannot be attributed to the properties of the placebo itself, and must therefore be due to the patient's belief in that treatment.

Double-blind Procedure

A research or testing method in which neither the subjects nor the experimenters know which subjects are in the control or experimental groups, to eliminate bias.

Experimental Treatment

A novel therapeutic approach or intervention being tested for its effectiveness, often within the context of a clinical trial.