If a bank had complete information about Cooperation X, the bank would be willing to make a 7% loan. Cooperation X wants to invest money in a real investment project with expected return or 10%. The loan is in fact not made. This could be a consquence of adverse selection.TRUE OR FALSE Economics Question?
False.
Corporation X must have something going against it. The bank could know something about the corporation that is holding back approval.
It's possible that the current economic climate is deterring the loan.TRUE OR FALSE Economics Question?
False
Adverse selection can only occur when there is incomplete information. If the bank has complete information on Corporation X, then it also knows where X is planning to invest to get 10% therefore the bank decided to invest there itself.
No comments:
Post a Comment