Credit market problems of adverse selection and moral hazard increased as a result of all of the following except ________.
A) increase in housing market prices
B) increased uncertainty from the failures of financial institutions
C) deterioration in financial institutions' balance sheets
D) decline in the stock market of over 40 percent from its peak

Question

Quizplus · Accepted Answer

An increase in housing market prices would not necessarily lead to credit market problems of adverse selection and moral hazard. In fact, it could potentially make borrowers less risky as their collateral (i.e. homes) increases in value. Therefore, the correct answer is A.

Credit Market Problems of Adverse Selection and Moral Hazard Increased