ECS3701 – MONETARY ECONOMICS
ASSIGNMENT 02 SUGGESTED SOLUTIONS
SEMESTER 01 2022
, PREVIEW
2.1
Asymmetric Information occurs in situations where one party’s insufficient knowledge about
the other party involved in a transaction makes it impossible to make accurate decisions when
conducting transactions.
Adverse selection is a problem arising from asymmetric information and occurs before the
transaction takes place. Potential bad credit risks are the individuals that most actively seek
out loans. Adverse risk increases the chances that a loan might be made to a bad credit risk
and so lenders might decide not to make any loans.
ASSIGNMENT 02 SUGGESTED SOLUTIONS
SEMESTER 01 2022
, PREVIEW
2.1
Asymmetric Information occurs in situations where one party’s insufficient knowledge about
the other party involved in a transaction makes it impossible to make accurate decisions when
conducting transactions.
Adverse selection is a problem arising from asymmetric information and occurs before the
transaction takes place. Potential bad credit risks are the individuals that most actively seek
out loans. Adverse risk increases the chances that a loan might be made to a bad credit risk
and so lenders might decide not to make any loans.
