If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans,it is described as
A)moral hazard.
B)moral suasion.
C)adverse selection.
D)fraud.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where the lender is unable to distinguish between good and bad credit risks, resulting in the bad credit risks being the ones most likely to seek loans. This can lead to higher default rates and losses for the lender. Moral hazard refers to the risk of the borrower taking on more risk than they would if they did not have insurance, while moral suasion refers to attempts to influence behavior through persuasion rather than coercion. Fraud refers to intentional deception for personal gain.

If Banks Face a Problem in Loan Markets When Bad