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.

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter20: The Problem Of Adverse Selection Moral Hazard
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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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