What is seen as a possible reason behind restricted supply of spot loans to borrowers during a credit crunch?
A)Expansionary monetary policy actions of the Reserve Bank of Australia.
B)FIs' increased aversion towards lending during tight monetary conditions.
C)Low aggregate demand from borrowers to take down loan commitments.
D)Decrease in cost of funds.

Question

Quizplus · Accepted Answer

During a credit crunch, financial institutions become more risk-averse and cautious about lending, leading to a restriction in the supply of spot loans to borrowers. This is due to the increased likelihood of defaults and non-repayment of loans during tough economic times. Other options, such as expansionary monetary policy actions and low aggregate demand, may have an impact on credit availability, but they are not directly linked to the restricted supply of spot loans during a credit crunch. A decrease in the cost of funds may actually increase lending, even during a credit crunch.

What Is Seen as a Possible Reason Behind Restricted Supply