When interest rates in the bond market rise,
A)adverse selection problems increase.
B)adverse selection problems are mitigated.
C)moral hazard problems increase.
D)moral hazard problems are mitigated.

Question

Quizplus · Accepted Answer

Higher interest rates can increase adverse selection problems because they may attract riskier borrowers who are willing to pay higher rates, leading to a higher likelihood of default.

When Interest Rates in the Bond Market Rise