1.

In the credit market scenario described in live sections, the problem of _______ occurs because _____________________________________________________.

a. adverse selection; borrower's type is unknown

b. adverse selection; lender's type is unknown

c. moral hazard; lender's action is unobservable and unenforceable

d. moral hazard; borrower's action is unobservable and unenforceable

2.

________________can occur when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.

a. Moral hazard

b. Adverse selection