Which of the following will happen if there is a fall in the supply of credit in an economy without any change in the demand for credit?
A) The real interest rate will fall.
B) The real GDP of the economy will fall.
C) The labor demand in the economy will increase.
D) The consumption expenditure in the economy will increase.

Question

Quizplus · Accepted Answer

A fall in the supply of credit in an economy, with demand for credit remaining constant, will likely lead to higher interest rates as borrowers compete for the limited available credit. This can reduce investment and spending, potentially leading to a decrease in real GDP. Higher interest rates can discourage borrowing for investment and consumption, leading to a contraction in economic activities.

Which of the Following Will Happen If There Is a Fall