If Borrowers Take on Big Risks After Obtaining a Loan,then

question 123

Multiple Choice

If borrowers take on big risks after obtaining a loan,then lenders face the problem of

• A) free-riding.
• B) adverse selection.
• C) moral hazard.
• D) costly state verification.

---

Definitions:

Legal Power

The authority vested by law in an entity or individual to make decisions, enforce rules, or control resources.

Mediator

An impartial individual who facilitates communication and negotiation between disputing parties to help them reach a voluntary agreement.

Two-Party Negotiation

A process where two parties discuss their differences and attempt to reach an agreement or solution.

Compatible Interests

Interests that align well together, allowing individuals or groups to engage cooperatively in activities or goals.