A credit crunch is a situation in which there is a shortage of credit available to borrowers, typically caused by a lack of liquidity in the financial system. This can make it difficult for businesses to obtain loans to invest and grow, and for consumers to obtain loans to buy homes or cars. A credit crunch can have a significant negative impact on the economy, as it can lead to a slowdown in economic growth and an increase in unemployment.
There are a number of things that governments and central banks can do to combat a credit crunch. One is to increase the supply of money in the economy, which can help to lower interest rates and make it easier for businesses and consumers to borrow money. Another is to provide guarantees for loans, which can reduce the risk for lenders and make them more willing to lend money. Governments can also provide fiscal stimulus, which can help to increase demand in the economy and make it more attractive for businesses to invest.