A Credit Crunch Causes a Recession Because

question 146

Multiple Choice

A credit crunch causes a recession because:

• A)potential borrowers can't get loans or must pay very high interest rates, so they cut back on spending.
• B)banks have a surplus of funds to loan, so interest rates fall to very low levels.
• C)unemployment falls to very low levels, causing a problem of inflation.
• D)interest rates are so low that investors' incomes fall, and they decrease their spending.

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Definitions:

Income

Income is the money received, especially on a regular basis, for work or through investments.

Real GDP

A macroeconomic measure of the value of economic output adjusted for price changes (inflation or deflation), giving a more accurate depiction of an economy's size and growth rate.

Recessions

Periods of economic decline when real GDP falls for two consecutive quarters, indicating a significant reduction in economic activity across the economy.

Inflation Rate

A rate, described in percentages, indicating how prices for various goods and services are climbing, which in turn decreases the value of money.