There are two ways in which an imperfect credit market manifests itself. One is in the form
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There are two ways in which an imperfect credit market manifests itself. One is in the form of a higher interest rate; the other is in the form of a ceiling on loans. Discuss how these two phenomena may come about. In particular, why is it that a higher interest rate cannot always compensate for the possibility of default and that a credit limit needs to be set? [See Chapter 14 for more on these matters.]
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In imperfect credit markets lenders face uncertainties and risks associated with borrower behavior This imperfection can manifest in two main ways thr...View the full answer
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