The Impact of the Credit Crunch on Travel and Tourism

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The Impact of ‘the credit crunch’ on ‘travel and tourism.’ A credit crunch is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates. In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e. credit rationing occurs). Now we are aware that as a result of a credit crunch, the banks are less willing to loan out money to customers which is often caused by a sustained period of careless and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known. Therefore, the consumers have less disposable income, i.e. a flow of money that could be used to purchase goods in the travel or tourism industry, for example a holiday. Thus decreasing the profit of this industry. A knock-on effect of this would be the fact that the entire economy’s GDP (gross domestic product) would decline since the travel and tourism industry are no longer being as economically sufficient, i.e. less total output. A decrease in consumer’s disposable income would result in decreased consumption of the industry. On the other hand, this doesn’t mean a complete decrease in demand, the consumers could change their demand i.e. shorter breaks in order to save money but still consume. Furthermore, it depends on the consumer’s elasticity of demand, i.e. the more inelastic demand the less responsive the consumer will be to a change in price, so even if they have

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