A situation in which borrowers cannot find credit or must pay very high interest rates for loans is called a:
A)liquidity trap.
B)zero-bound limit.
C)credit crunch.
D)stagflation.

Question

Quizplus · Accepted Answer

A credit crunch is a situation in which there is a shortage of credit available to borrowers, resulting in higher interest rates or a complete lack of credit availability. This can occur when lenders become risk-averse and tighten their lending standards, or when there is a general lack of liquidity in the financial system. A liquidity trap (A) is a situation in which monetary policy becomes ineffective due to interest rates being so low that people prefer to hold cash rather than invest it. Zero-bound limit (B) refers to a situation where interest rates are already so low that central banks cannot lower them further to stimulate the economy. Stagflation (D) is a combination of stagnant economic growth and high inflation.

A Situation in Which Borrowers Cannot Find Credit or Must