If credit growth and associated debt levels are growing too quickly,a central bank will generally:
A) decease interest rates.
B) use open market operations and sell government securities.
C) increase interest rates.
D) loosen monetary policy.

Question

Quizplus · Accepted Answer

If credit growth and associated debt levels are growing too quickly, a central bank will generally increase interest rates as a way to discourage borrowing and slow down credit growth. This is because higher interest rates make borrowing more expensive, which can lead people and businesses to reduce their borrowing and spending. Decreasing interest rates or loosening monetary policy would have the opposite effect and encourage further borrowing, which would exacerbate the problem. Open market operations and selling government securities are tools that a central bank may use to affect interest rates, but the overall goal would be to increase rates in this scenario.

If Credit Growth and Associated Debt Levels Are Growing Too