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Give an example of an event that might change banks’ cost of lending (cL) and explain...

Give an example of an event that might change banks’ cost of lending (cL) and explain why this changed cost results.

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A hike in inflation will lead to an increase in the cost of lending of banks. This is because cost of lending is the interest rate charged to borrowers. Higehr the inflation, higher are the prices of goods and services and greater is the demand for money. Due to higher demand for money, its cost will increase leading to an increase in the cost of lending by the banks.

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