The GFC:
A)prompted a 'flight to quality' that pushed up the interest rate on government securities
B)caused a sharp contraction in lending that prevented many firms from being able to refinance their maturing debt
C)prompted the US government to 'bail-out' financial institutions, including Lehman Brothers
D)reinforced the view that markets are 'self-correcting'
E)lead to widespread failures of financial institutions in Australia.

Question

Quizplus · Accepted Answer

The GFC caused a sharp contraction in lending, as banks tightened their lending standards and were reluctant to lend to each other or to businesses, which prevented many firms from being able to refinance their maturing debt. This led to a credit crunch and exacerbated the economic downturn.