________________________ best describes a situation where a borrower takes out a loan and, unbeknownst to the lender, uses the proceeds for a much more risky venture.
A)Asymmetric information
B)Adverse selection
C)Moral hazard
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Moral hazard refers to a situation where a borrower changes their behavior after obtaining a loan because they are now insulated from some of the risk. In this case, the borrower may take on riskier ventures since they are not personally liable for the loan if it fails. Asymmetric information and adverse selection would not be as applicable in this scenario.

________________________ Best Describes a Situation Where a Borrower Takes Out