When the borrower engages in activities that make it less likely that the loan will be repaid,________ is said to exist.
A) asymmetric information
B) adverse selection
C) moral hazard
D) fraud

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party takes higher risks or engages in negative behavior because the other party bears the costs. In this scenario, the borrower is incentivized to take actions that may make it less likely for them to repay the loan since they are not the ones bearing the costs of defaulting on the loan. This behavior is known as moral hazard.

When the Borrower Engages in Activities That Make It Less