ECO 203 Week 4 DQ 2 (The Effect of Bank Lending on the Company) (Ash Course)/uophelp

<strong>ECO</strong> <strong>203</strong> <strong>Week</strong> 4 <strong>DQ</strong> 2 (<strong>The</strong> <strong>Effect</strong> <strong>of</strong> <strong>Bank</strong> <strong>Lending</strong> on the
Company) (Ash Course)
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O-<strong>203</strong>-<strong>Week</strong>-4-<strong>DQ</strong>-1-(Federal-Reserve-<strong>Bank</strong>-Policy-durin
g-the-2007-To-2008-Recession)
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Discussion 2
<strong>The</strong> <strong>Effect</strong> <strong>of</strong> <strong>Bank</strong> <strong>Lending</strong> on
the Economy
In conducting expansionary monetary policy, even if the Federal
Reserve <strong>Bank</strong> is providing reserves to the banking system, during a
recession or during periods <strong>of</strong> 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 <strong>Effect</strong>ive? and
section 14.3: Domestic Sectoral <strong>Effect</strong>s.