A collateral shock refers to a reduction in:
A) the value of collateral so that borrowing becomes more difficult.
B) collateral requirements so that borrowing becomes easier.
C) interest rates so that it is less costly to borrow.
D) the effect of a negative shock on the damage of businesses.

Question

Quizplus · Accepted Answer

A collateral shock refers to a negative shock that leads to a reduction in the value of collateral. This makes it more difficult to borrow as lenders are less secure in their ability to recoup their losses in the event of a default.

A Collateral Shock Refers to a Reduction In