Question

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.

Answer 1

"The economy suffers because banks have less money to loan to others."

When borrowers default, banks take losses and their capital falls, so they tighten credit or reduce lending. That credit contraction lowers business investment and consumer spending, amplifying the economic harm more than mere borrower fear.