Final answer:
The main concern when an issuer's credit quality falls sharply is the default risk. A decline in interest rates tends to occur with a rise in supply, while an increase in the quantity of loans is driven by a rise in both demand and supply.
Step-by-step explanation:
If the credit quality of the issuer falls sharply, the main concern would be c. The default risk. This is because a decline in credit quality indicates a higher risk of the issuer not being able to meet its financial obligations. As for the financial market changes, a decline in interest rates would typically be caused by c. a rise in supply of funds in the market as this increase in supply, all else being equal, would lead to lower costs of borrowing. Conversely, an increase in the quantity of loans made and received is often due to a. a rise in demand for loans coupled with c. a rise in supply of loanable funds.