When the least desirable borrowers pursue a loan most diligently, lenders are faced with a/an
A)adverse selection problem.
B)asymmetric information problem.
C)moral hazard problem.
D)None of the above are correct.

Question

Quizplus · Accepted Answer

Adverse selection refers to the situation where borrowers with the highest risk of default are the most likely to apply for a loan. Lenders may not have enough information about the borrower's creditworthiness, which can lead to higher default rates and losses for the lender.

When the Least Desirable Borrowers Pursue a Loan Most Diligently