What is a credit spread?

A.

The difference between the net worth of a borrower and the amount of the loan the borrower would like to secure.

B.

The difference between a borrower's credit score and the score of the most credit-worthy borrower.

C.

The difference between the interest rates on corporate bonds with different maturities.

D.

The difference between interest rates on loans to households and businesses and interest rates on completely safe assets.

Why do credit spreads rise significantly during a financial crisis?

A.

Credit spreads rise because the government becomes the only institution that is able to lend money to borrowers.

B.

Credit spreads rise because depositors with productive investment opportunities withdraw their funds from banks, which creates an incentive to lend to borrowers with riskier investment opportunities.

C.

Credit spreads rise because asymmetric information problems increase, making it more difficult to judge the risk of potential borrowers.

D.

Credit spreads rise because lenders charge lower interest rates to protect businesses from credit losses and, therefore, from default of payments.