What is a possible reason behind restricted supply of spot loans to borrowers during a credit crunch?
A)Expansionary monetary policy actions of the Federal Reserve.
B)FI's increased aversion toward lending.
C)Shift to the right in the loan supply function at all interest rates.
D)Low aggregate demand from borrowers to take down loan commitments.
E)Decrease in cost of funds.

Question

Quizplus · Accepted Answer

During a credit crunch, financial institutions (FIs) become more risk-averse and conservative in their lending practices. This results in a decreased supply of spot loans to borrowers, as FIs are less willing to take on the risk associated with lending during times of economic uncertainty.

What Is a Possible Reason Behind Restricted Supply of Spot