Which best describes the economic impact of defaulting on bank loans? the economy suffers because banks have less money to loan to others. the economy suffers because people have less money to spend. the economy suffers because businesses are scared to take out loans. the economy suffers because people are scared to take out loans.

All alternatives could be correct, but the best is the first (A).

When there is a rise in default, banks tend to tighten lending rules, charging higher rates and making higher counterparty demands. In this way, credit becomes more expensive and fewer people are encouraged to make loans for consumption and investment. With less money circulating in the economy, economic activity cools.

is this an essay or multiple choice

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