The increased spread between three-month LIBOR and three-month bond yields led to ________. This is a classic example of ________.
A) reduced lending; a liquidity crisis
B) a rush to buy bonds; an asset bubble
C) falling risk in financial markets; risk sharing
D) increased inflationary expectations; cost-push inflation
E) increased consumer expenditure; the monetary transmission mechanism

Question

Quizplus · Accepted Answer

An increased spread between three-month LIBOR and three-month bond yields indicates that banks are becoming more reluctant to lend to each other, making it harder for borrowers to access credit. This can lead to reduced lending and a liquidity crisis, as seen during the global financial crisis in 2008.

The Increased Spread Between Three-Month LIBOR and Three-Month Bond Yields