When the Least Desirable Credit Risks Are the Ones Most

question 22

Multiple Choice

When the least desirable credit risks are the ones most likely to seek loans,lenders are subject to the

• A) moral hazard problem.
• B) adverse selection problem.
• C) shirking problem.
• D) free-rider problem.
• E) principal-agent problem.

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Definitions:

Interest Rates

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Interest-Sensitive Goods

These are goods whose demand fluctuates in response to changes in interest rates, often because they involve large financial investments or credit to purchase.

Financial Crisis

A situation where financial assets suddenly lose a significant part of their nominal value, often leading to bankruptcies and economic downturns.