Multiple Choice
An asymmetric information problem arises when
A) interest rates exceed r.
B) the representative firm is unable to borrow.
C) there are more bad firms than good firms that wish to borrow.
D) the lender is not able to distinguish between a good borrower and a bad borrower.
E) the managers of bad firms consumer the borrowed funds as executive compensation.
Correct Answer:
Verified
Correct Answer:
Verified
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