If the Bank Lending Channel Is Correct, a Credit Crunch

question 51

Multiple Choice

If the bank lending channel is correct, a credit crunch in bank lending should

• A)lower interest rates.
• B)be felt disproportionately by borrowers for whom transactions costs of nonbank finance are the highest.
• C)increase the money supply.
• D)lead to disintermediation.

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Definitions:

Progressive Income Tax

A tax system where the tax rate increases as the taxable amount increases, placing a higher financial burden on wealthier individuals.

Regressive Income Tax

A tax system where the tax rate decreases as the taxable amount increases, placing a higher relative burden on lower-income earners.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the rate applied to each additional dollar of income.

Net Pay

The amount of money an employee receives after deductions like taxes and social security charges are subtracted from the gross pay.