A credit crunch
A)is an increase by consumers in the default rate on loans.
B)is a decline in either the ability or the willingness of banks to lend at any particular interest rate.
C)is a reduction in the money supply by the Fed.
D)is an increase in the discount rate by the Fed.

Question

Quizplus · Accepted Answer

A credit crunch refers to a situation where banks become hesitant to lend, either due to a decline in their ability (i.e. lack of funds to lend) or willingness (i.e. risk aversion) to lend at a particular interest rate. It can lead to a reduction in the availability of credit, which can negatively impact investment and economic growth.

A Credit Crunch