ASH ECO 203 Week 4 DQ 2 The Effect of Bank .pdf
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ASH ECO 203 Week 4 DQ 2 The Effect of Bank Lending on the
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ECO 203 Week 4 DQ 2 The Effect of Bank Lending on the Company
The Effect of Bank Lending on the Economy
In conducting expansionary monetary policy, even if the Federal Reserve Bank is providing reserves to the
banking system, during a recession or during periods of slow economic growth, banks may choose not to lend out
their reserves when interest rates are low and potential borrowers look risky. This is known as a “credit
crunch”. Explain how a credit crunch affects economic growth. Specifically, answer these questions in your post:
• How does a credit crunch affect consumer spending and business investment?
• How does a credit crunch affect aggregate demand, GDP, and unemployment?
Reference: Chapter 14.1 Is Monetary Policy Effective? and section 14.3: Domestic Sectoral Effects.
Guided Response: Review the discussion board posts of your classmates. Respond to at least two of your
classmates with responses that allow them to extend their thinking. Support your ideas with concepts found in
the assigned reading