How does the concept of asymmetric information help to define a financial crisis?
How does the concept of asymmetric information help to define a financial crisis?
Homework Answers
How does the concept of asymmetric information help to define a financial crisis?
Answer:
Asymmetric information problems (adverse selection and moral hazard problems) are always present in financial transactions but normally do not prevent the financial system from efficiently getting funds from lenders to borrowers. During a financial crisis, however, asymmetric information problems intensify to that the resulting financial frictions lead to flows of funds being halted or severely disrupted, with harmful consequences for economic activity.
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How does the concept of asymmetric information help to
define a financial crisis?
Give 3 simple examples: making use of formal economic theory to analysis asymmetric information and/or incomplete contracts in how financial regulation could help avoid another Global Financial Crisis...
Give 3 simple examples: making use of formal economic theory to analysis asymmetric information and/or incomplete contracts in how financial regulation could help avoid another Global Financial Crisis
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