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A credit union faces a(n) ________ problem when it lends funds to a customer to remodel her home and ...

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A credit union faces a(n) ________ problem when it lends funds to a customer to remodel her home and ...

Question 1.

An automobile finance company faces an adverse selection problem if borrowers

▸ with a greater chance of defaulting on their car loans get loans from the lender.

▸ with no chance of defaulting on their car loans get loans from the lender.

▸ choose to get their car loans from a source other than the finance company.

▸ choose a 5-year loan as opposed to a 2-year loan.

Question 2.

A credit union faces a(n) ________ problem when it lends funds to a customer to remodel her home and the customer then opportunistically uses the funds for a gambling trip to Las Vegas.

▸ adverse selection

▸ moral hazard

▸ external cost

▸ free-rider

Textbook

Principles of Economics

Edition: 12^th

Authors: Case, Fair, Oster

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