During the expansion phase of the business cycle
A) the demand for loanable funds tends to fall.
B) interest rates tend to rise.
C) bond prices tend to rise.
D) inflationary expectations tend to fall.

Question

Quizplus · Accepted Answer

During the expansion phase of the business cycle, the demand for loanable funds tends to increase as businesses seek to expand their operations. This increased demand for loanable funds results in higher interest rates as lenders seek to earn a higher return on their investments. Therefore, option B is the correct choice. The other options are incorrect as bond prices tend to fall during an expansion phase due to the increased interest rates, and inflationary expectations tend to rise as the economy grows.

During the Expansion Phase of the Business Cycle