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Assume that the Supreme Court of Canada rules that lenders in mortgage contracts may not include the house as collateral. How will the announcement affect
Assume that the Supreme Court of Canada rules that lenders in mortgage contracts may not include the house as collateral. How will the announcement affect the market for mortgage loans? Explain your reasoning with the help of the concepts of adverse selection and moral hazard and how these problems are affected by the presence of (or as in this case lack of) collateral. Draw the Demand supply diagram to show the effect on interest rates in this market.
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