If the bank lending channel is correct, a credit crunch in bank lending should
A)lower interest rates.
B)be felt disproportionately by borrowers for whom transactions costs of nonbank finance are the highest.
C)increase the money supply.
D)lead to disintermediation.

Question

Quizplus · Accepted Answer

The bank lending channel theory suggests that changes in bank lending can have an impact on the availability of credit for borrowers, particularly those with higher transactions costs associated with obtaining nonbank finance. Therefore, a credit crunch in bank lending would be felt disproportionately by these borrowers. The other choices listed are not consistent with the bank lending channel theory.

If the Bank Lending Channel Is Correct, a Credit Crunch