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:

Liquidity Problems

Liquidity problems occur when an individual or business lacks sufficient liquid assets (like cash) to meet its short-term financial obligations.