A sudden stop in credit availability:
A) is usually manageable if the nation has sufficient reserves to cover imports.
B) is usually very disruptive and necessitates major cuts in expenditures.
C) affects large industrial nations primarily.
D) is very unlikely to happen in practice.

Question

Quizplus · Accepted Answer

A sudden stop in credit availability is usually very disruptive and necessitates major cuts in expenditures. This is because it can lead to a severe contraction of economic activity, making it difficult for firms and households to raise funds for investment and consumption. This can result in job losses, decreased consumer spending, and a vicious cycle of economic contraction. Countries may need to drastically decrease spending in order to balance their budget and pay off their debts.

A Sudden Stop in Credit Availability