Macroeconomics
Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 20.3, Problem 3RQ
To determine

Identify the signaling and screening in the market for loans in terms of private information.

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20-2 A collogue tells you that he can get a business loan from the bank, but he rates seem very high for what our collogue considers a low risk loan. Give an adverse selection explanation for this, and offer advice to your friend on how to solve the problem. Give moral hazard explanation for this, and offer advice to your friend on how to solve the problem.
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