Interest rates are procyclical in that they tend to rise during business cycle expansions and fall during recessions.

Question

Quizplus · Accepted Answer

Interest rates are generally procyclical, meaning they tend to move in the same direction as the overall economy. During expansions, demand for credit increases, leading to higher interest rates to keep inflation in check. Conversely, during recessions, demand for credit decreases, leading to lower interest rates to stimulate lending and borrowing.

Interest Rates Are Procyclical in That They Tend to Rise