A credit crunch is a situation in which there is a sudden and sharp reduction in the availability of credit. This can have a significant impact on the economy, as it can make it difficult for businesses to borrow money to invest and grow. There are a number of things that can cause a credit crunch, including a sudden loss of confidence in the financial system, a sharp increase in interest rates, or a decline in the value of assets used as collateral for loans.
Credit crunches can have a number of negative consequences for the economy. They can lead to a decline in investment and economic growth, as well as an increase in unemployment. In some cases, credit crunches can even lead to a recession or depression.