Credit is tight. Even borrowers with good credit have to shop around for loans, and it seems like banks are reluctant to loan their money. Of the following choices, what could be the reason?
A) The Fed is decreasing the discount rate.
B) The Federal Open Market Committee has started selling securities.
C) The Fed has attempted to increase the money supply as prices begin to rise.
D) The Fed has made some changes to the checkclearing processes of the member banks, charging higher fees for the service.

Question

Credit is tight. Even borrowers with good credit have to shop around for loans, and it seems like banks are reluctant to loan their money. Of the following choices, what could be the reason?
A) The Fed is decreasing the discount rate.
B) The Federal Open Market Committee has started selling securities.
C) The Fed has attempted to increase the money supply as prices begin to rise.
D) The Fed has made some changes to the check­clearing processes of the member banks, charging higher fees for the service.

Quizplus · Accepted Answer

When the Federal Open Market Committee sells securities, it reduces the money supply in the economy, leading to tighter credit conditions as banks have less money to lend.

Credit Is Tight