Governments Can Reduce the Problem of Adverse Selection By

question 85

Multiple Choice

Governments can reduce the problem of adverse selection by:

• A) requiring disclosure about investment projects and a firm's finances.
• B) providing loans from public funds.
• C) keeping interest rates low.
• D) reducing corporate income tax rates.

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Definitions:

Guaranty

A legal commitment by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults.

Suretyship

A contractual agreement where a party (surety) agrees to be responsible for the debt or obligations of another party (principal) if that party fails to fulfill them.

Cosigner

an individual who agrees to be responsible for the repayment of a loan or debt if the primary borrower fails to pay.

Bankruptcy

A legal procedure for dealing with debt problems of individuals or businesses; officially declared inability to pay off debts.