If recessions in the United States were to increase in frequency, length, and severity, the likely result would be a(an)
A)shift to the right in the supply curve for loanable funds.
B)shift to the right in the demand curve for bonds.
C)rise in the equilibrium interest rate.
D)increase in the liquidity of corporate bonds.

Question

Quizplus · Accepted Answer

If recessions increase in frequency, length, and severity, investors may become more risk-averse, leading to a decrease in investment and an increase in savings. This increase in the supply of loanable funds will drive down interest rates, but if the government intervenes with expansionary monetary policy, it will increase the demand or loanable funds, which will drive up interest rates. This would cause a rise in the equilibrium interest rates. Therefore, choice C is the correct answer.

If Recessions in the United States Were to Increase in Frequency