The credit spread is countercyclical and coincident,suggesting that a sudden increase in financial frictions is most likely ________.
A)when the economy has been expanding for some time
B)after the economy has turned into a recession
C)during the recovery phase of the business cycle
D)when expected inflation is declining

Question

Quizplus · Accepted Answer

Credit spreads tend to widen when the economy has been expanding for some time, indicating increasing risk or financial frictions as the business cycle reaches its peak and potentially turns towards a downturn. This is because lenders demand higher premiums for perceived increased risk.

The Credit Spread Is Countercyclical and Coincident,suggesting That a Sudden