Question1. When interest rates are high, lenders may not want to make loans because of:
[A] Costly state verification.
[B] Moral hazard.
[C] Adverse selection.
[D] The principal-agent problem.
Question2. A venture capital firm:
[A] Allows equity shares of the new firm to be sold in the marketplace.
[B] Increases the size of the moral hazard problem.
[C] Has no say in the management of the new firm.
[D] Pools resources to help entrepreneurs start new firms.
Question3. An incentive compatible debt contract:
[A] Provide incentives for the borrower to make interest payments.
[B] Increases the size of the moral hazard problem.
[C] Aligns the incentives of the borrower with those of the lender.
[D] Provide incentives for lenders to pick a certain industry.
Question4. Which of the following explain the ‘lemons problem’
[A] Sellers have more information than buyers and more transactions occur.
[B] Buyers have more information than sellers and few transactions occur.
[C] Buyers have more information than sellers and more transactions occur.
[D] Sellers have more information than buyers and few transactions occur.