Increases in a borrower's net worth:

Question

Quizplus · Accepted Answer

As a borrower's net worth increases, it reduces the problem of moral hazard because they have more to lose if they default on the loan. It also lowers the information costs of lending as higher net worth indicates better creditworthiness and trustworthiness of the borrower. Additionally, it reduces the problem of adverse selection because higher net worth indicates a lower likelihood of default on the loan. Therefore, all of the given answers are correct.

Increases in a Borrower's Net Worth