A vicious cycle of deleveraging occurs when:

Question

Quizplus · Accepted Answer

A vicious cycle of deleveraging occurs when asset sales to cover losses produce negative balance sheet effects and force creditors to call in loans, forcing more sales of assets at decreasing prices. This creates a chain reaction, where the decrease in asset values further reduces the value of the balance sheet, leading to more sales and loan calls. This cycle can lead to a downward economic spiral and can be seen in situations such as the 2008 financial crisis. The other choices (B, C, D) do not pertain to the concept of deleveraging.

A Vicious Cycle of Deleveraging Occurs When