A decline in bank lending during a recession
A)indicates that a credit crunch is occurring.
B)indicates that the demand for bank loans has declined.
C)will generally result in higher real interest rates.
D)might be the result of a credit crunch or a decline in the demand for bank loans.

Question

Quizplus · Accepted Answer

A decline in bank lending during a recession could be caused by a credit crunch, which is a sudden reduction in the availability of credit due to a lack of confidence in borrowers' ability to repay loans. It could also be due to a decline in the demand for bank loans as individuals and businesses may be hesitant to take on additional debt during a recession. Therefore, option D is the best choice as it covers both possible reasons.

A Decline in Bank Lending During a Recession