What does Credit Tightening refer to?

What does Credit Tightening refer to?

• A. When businesses find it harder to gain credit and borrow money
• B. When banks lower interest rates
• C. When more loans are approved
• D. When economic growth increases

Answer: (A)

Credit tightening refers to a situation in which financial institutions, like banks, become less willing to lend money. This typically occurs due to increased risk perceptions, economic downturns, or adverse financial conditions. As a result of credit tightening, businesses and individuals find it more difficult to secure loans, leading to a decrease in borrowing. This can impact businesses' ability to invest in growth or cover expenses, ultimately affecting the economy overall. In contrast, options that discuss lowering interest rates, approving more loans, or increasing economic growth do not align with the concept of credit tightening, as these would generally indicate a more favorable lending environment rather than one that is restrictive.

Credit tightening refers to a situation in which financial institutions, like banks, become less willing to lend money. This typically occurs due to increased risk perceptions, economic downturns, or adverse financial conditions. As a result of credit tightening, businesses and individuals find it more difficult to secure loans, leading to a decrease in borrowing. This can impact businesses' ability to invest in growth or cover expenses, ultimately affecting the economy overall.

In contrast, options that discuss lowering interest rates, approving more loans, or increasing economic growth do not align with the concept of credit tightening, as these would generally indicate a more favorable lending environment rather than one that is restrictive.