In a credit crunch:
A)interest rates are so low that savers decrease the quantity of available loanable funds.
B)borrowers are forced to pay very high interest rates or may not be able to borrow at all.
C)unemployment is usually very low and the growth rate of output is very high.
D)the spread becomes negative.

Question

Quizplus · Accepted Answer

A credit crunch refers to a situation in which banks and lenders are reluctant to lend money, which leads to a decrease in the quantity of loanable funds available. This, in turn, leads to higher interest rates for borrowers, making it harder for them to access credit. In some cases, borrowers may not be able to borrow at all, hence the term "credit crunch." Option A is incorrect as low interest rates would encourage savers to lend their money out, increasing the quantity of loanable funds. Option C is incorrect because a credit crunch is usually a symptom of a weak economy, which typically leads to high unemployment and low output growth. Option D is also incorrect as the spread is the difference between the interest rate paid by borrowers and that paid to savers, and it can be negative or positive regardless of whether there is a credit crunch.

In a Credit Crunch