In order to reduce the ________ problem in loan markets,bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.
A)moral hazard
B)adverse selection
C)moral suasion
D)adverse lending

Question

Quizplus · Accepted Answer

Adverse selection refers to the tendency for high-risk borrowers to be more likely to apply for a loan than low-risk borrowers, which can lead to lenders being stuck with a pool of bad credit risks. To combat this, lenders collect information from potential borrowers to screen out those who are more likely to default on their loan. This is a way to reduce the adverse selection problem in loan markets.

In Order to Reduce the ________ Problem in Loan Markets,bankers