Q. Which one of the following statements best defines the term ‘Credit-to-GDP Gap’, seen in the news recently?

[A] It measures the total outstanding debt of a country government or private sector relative to its Gross Domestic Product.

[B] It assesses the level of debt in relation to a financial institution capital.

[C] It is a measure used in macroeconomics and financial stability analysis to assess the potential buildup of systemic risk in the financial system.

[D] It assesses the difference between a country savings and its investment, including trade balances.

Answer: C
Notes:

Explanation – Credit-to-GDP gap is a measure used in macroeconomics and financial stability analysis to assess the potential buildup of systemic risk in the financial system. The credit-to-GDP gap is specifically used to evaluate the potential risks associated with excessive credit growth and its impact on the stability of the financial system. A widening credit-to-GDP gap can signal potential risks of financial instability, such as asset bubbles or banking crises.

Source: Forum IAS

Blog
Academy
Community