The owner of a small business applies for a bank loan and tells the loan officer that the funds will be used to expand inventory for the upcoming holiday season. The small business finds itself in need of additional funds to meet the monthly rent for the next quarter and the owner uses the loan proceeds to pay the rent. This is an example of:

Question

Quizplus · Accepted Answer

This is an example of information asymmetry, as the small business owner provided misleading information to the loan officer regarding the intended use of the loan funds.

The Owner of a Small Business Applies for a Bank