CA Foundation · Business Economics · Business Cycles
Which of the following is a typical effect of a prolonged downturn on banks in an economy?
A prolonged downturn typically raises banks' non-performing assets because borrowers' incomes and sales fall and repayments become difficult. Credit demand also weakens, so claims of falling NPAs or rapidly growing loan demand fit an expansion, not a downturn.
- AFalling non-performing assets as borrowers repay faster
- BRising non-performing assets as borrowers' incomes weakenCorrect
- CRapidly rising demand for new business loans
- DRising interest income due to higher credit growth
Explanation
In a downturn, firms' sales and household incomes fall, so repayment becomes difficult and loan defaults increase, raising non-performing assets. Credit demand also weakens, so the other options, which suggest improving conditions, are wrong.
Did you get it right without looking?
One question tells you little. A timed set on Business Cycles shows your real accuracy, how long you take and where you lose marks.
More Business Cycles questions
- In the Samuelson-type multiplier-accelerator explanation of cycles, an initial rise in autonomous investment raises income through the multi…
- Which of the following is a feature of business cycles that distinguishes them from seasonal variations and long-term trends?
- During a recession, which of the following policy responses is most consistent with a counter-cyclical fiscal policy?
- Which statement about how different sectors typically behave over a business cycle is correct?
- During the expansion phase of a business cycle, which of the following typically occurs in the economy?
- Which of the following is an example of a lagging economic indicator in business cycle analysis?