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Evaluating a Policy to Address Credit Exclusion
A policymaker proposes a new law that would require banks to offer loans to all applicants, arguing that this will solve the problem of individuals being completely unable to borrow money. Critically evaluate this proposal. In your response, explain the fundamental reasons why some individuals are excluded from credit markets in the first place, and discuss the likely unintended consequences of this forced lending policy for both the lenders and the very individuals the policy is intended to help.
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Social Science
Empirical Science
Science
CORE Econ
Economics
Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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Assessing Credit Market Access
Which of the following scenarios best illustrates the situation of an individual who is completely unable to access credit on any terms?
A person with very little wealth who is unable to get a loan on any terms is considered 'credit market excluded'. This situation arises primarily because lenders assume such an individual is fundamentally unwilling to repay, rather than because the lender calculates a high risk of the individual being unable to repay.
Lender's Rationale for Credit Exclusion
Consequences of Credit Market Exclusion
Match each individual's situation with the correct term describing their access to borrowing.
Impact of a Policy on Credit Market Access
A lender is evaluating a loan application from an individual who has no savings, property, or other assets that could be used as security. From the lender's perspective, why is this individual most likely to be completely denied a loan, rather than simply being offered one at a high interest rate?
Evaluating a Policy to Address Credit Exclusion
An individual who is offered a loan but at an interest rate so high that they cannot afford the repayments is considered 'credit market excluded'.
Correlation Between Poverty and Credit Limitations
Credit Constraints and the Employment Path for the Less Wealthy