A decline in borrower net worth
A)raises information costs, but increases the ability of households and firms to borrow.
B)reduces information costs and increases the ability of households and firms to borrow.
C)raises information costs and reduces the ability of households and firms to borrow.
D)reduces information costs and reduces the ability of households and firms to borrow.

Question

Quizplus · Accepted Answer

A decline in borrower net worth indicates a higher risk of default, which raises information costs for lenders and reduces the willingness to lend. This ultimately reduces the ability of households and firms to borrow.

A Decline in Borrower Net Worth