Contagion is:
A) the failure of one bank spreading to other banks through depositors withdrawing of funds.
B) the phenomenon that if one bank loan defaults it will cause other bank loans to default.
C) the rapid contraction of investment spending that occurs when interest rates are increased by the Federal Reserve.
D) the rapid inflation that results from the printing of money.

Question

Quizplus · Accepted Answer

Contagion refers to the phenomenon where the failure of one bank can lead to a loss of confidence in other banks, causing depositors to withdraw their funds from these banks as well, potentially leading to a wider financial crisis.

Contagion Is