The correct answer is: C. Both A and B
Information asymmetry is a situation in which one party in a transaction has more information than the other party. This can lead to problems in credit markets, as lenders may be unwilling to lend to borrowers who they do not have enough information about. Reducing information asymmetry can help to improve credit markets by making it easier for lenders to assess the risk of borrowers.
The size of a firm can also affect its ability to obtain credit. Larger firms are often seen as being less risky than smaller firms, and they may be able to obtain credit on more favorable terms. This is because larger firms are more likely to have a track record of repayment, and they are also more likely to have assets that can be used as collateral.
Therefore, both information asymmetry and the size of a firm can affect the availability of credit. Reducing information asymmetry and increasing the size of firms can help to eliminate credit gaps.
Here is a brief explanation of each option:
- A. Information asymmetry is a situation in which one party in a transaction has more information than the other party. This can lead to problems in credit markets, as lenders may be unwilling to lend to borrowers who they do not have enough information about. Reducing information asymmetry can help to improve credit markets by making it easier for lenders to assess the risk of borrowers.
- B. Size of the firm can also affect its ability to obtain credit. Larger firms are often seen as being less risky than smaller firms, and they may be able to obtain credit on more favorable terms. This is because larger firms are more likely to have a track record of repayment, and they are also more likely to have assets that can be used as collateral.
- C. Both A and B are correct. Reducing information asymmetry and increasing the size of firms can help to eliminate credit gaps.