Question

How is the economy impacted by a credit crunch?

Answer 1

The impact of a credit crunch can be very severe on the economy. A credit crunch results in rapid deterioration of credit growth and getting loans or advances to expand a business or meet increased requirement of funds can become very difficult. As a result, businesses don't grow and sometimes their sizes may shrink also which may lead to reduction In employment generated by the business. This in turn affect the spending power and the demand in the economy. All this have a negative spiralling impact which may lead to a recession in the economy.