In a vicious cycle of deleveraging:
A)banks buy some type of asset and push the price up to an unreasonable level.
B)banks are forced to sell assets at a deep discount to reduce their debt.
C)depository banks and shadow banks engage in maturity transformation.
D)the Fed is prohibited from acting as a lender of last resort.

Question

Quizplus · Accepted Answer

In a vicious cycle of deleveraging, banks are forced to sell assets at a deep discount to reduce their debt, which pushes down asset prices even further and leads to further losses for banks. This creates a negative feedback loop that can lead to a downward spiral in the economy. The other choices (A, C, and D) may contribute to financial instability but do not necessarily lead to a vicious cycle of deleveraging.

In a Vicious Cycle of Deleveraging