Question 1
A lender faces a(n) ________ problem if borrowers with a greater chance of defaulting on their loans get loans from the lender.
◦ adverse selection
◦ moral hazard
◦ external cost
◦ free‐rider
Question 2
A lender faces a(n) ________ problem when the lender lends funds to a borrower for a specific purpose and the borrower then opportunistically uses the funds for another purpose.
◦ adverse selection
◦ moral hazard
◦ external cost
◦ free‐rider