Credit market problems of adverse selection and moral hazard increased as a result of all of the following except

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 have the opposite effect by increasing the value of collateral and reducing default risk. The other options - increased uncertainty from the failures of financial institutions, deterioration in financial institutions' balance sheets, and decline in the stock market of over 40% from its peak - can all contribute to credit market problems by creating conditions that make it harder for lenders to distinguish between good and bad borrowers and by reducing the incentives of borrowers to repay their debts.

Credit Market Problems of Adverse Selection and Moral Hazard Increased