Why Is Adverse Selection More Likely in Financial Markets When

question 20

Multiple Choice

Why is adverse selection more likely in financial markets when interest rates rise?

• A)The remaining borrowers are more likely to be risky.
• B)Higher interest rates are likely to hurt the economy.
• C)If firms have to pay higher interest rates, they may choose to use the funds differently than they first intended.
• D)Banks eliminate risky borrowers by raising interest rates.

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Definitions:

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Regulatory methods designed to encourage businesses to improve their environmental performance through rewards or penalties.

Political Suicide

Actions or decisions by a politician that are likely to seriously harm their own career or reputation.

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This term measures the amount of gasoline used by vehicles within a certain area or by a country over a specified time period.

Federal Gasoline Tax

A tax imposed by the federal government on the sale of gasoline, primarily used to fund highway and mass transit projects.