Question

Q1:

Suppose innovators in the financial industry create software and systems that lower the long run minimum average cost of matching borrowers and lenders. Then

A. borrowers are made better off, but not lenders

B. lenders are made better off, but not borrowers

C. both borrowers and lenders are made better off

D. industry professionals are made better, but borrowers and lenders are made neither worse off or better off

Q2:

Since borrowers have more information about their intention and probability of repaying a loan and some borrowers do not intend to repay their loans

A. borrowers have moral hazard

B. there will be a persistent excess supply of loans

C. the pool of borrowers deteriorates as the interest rate increases

D. always leads to credit rationing

Answer 1

Q.1.

Since software is useful for lowering the long run minimum average cost of matching borrowers and lenders, it's actually benefit is made to industry professionals, but borrowers and lenders are made neither worse off or better off.

Correct Ans - D

Q.2.

Since borrowers have more information about their intention and probability of repaying a loan and some borrowers do not intend to repay their loans, this leads to the issue of credit rationing. This means that there is limiting by lenders of the supply of additional credit to borrowers who demand funds, even if the latter are willing to pay higher interest rates.

It's not a problem of moral hazard since borrowers are not insured.

Correct Ans - D