Multiple Choice
Why are savers often unwise in lending to borrowers who are willing to pay very high interest rates?
A) Very high interest rates are against the law in many states.
B) The high tax rates on interest income make high-interest rate loans unappealing to lenders.
C) Borrowers will usually pay very high interest rates only when inflation is high, which makes the real interest rate on such loans low.
D) Adverse selection and moral hazard problems reduce the likelihood of repayment on high-interest rate loans.
Correct Answer:
Verified
Correct Answer:
Verified
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