The level of interest rates tends to __________ during periods of business cycle expansion and __________ during periods of cyclical recession.
A) rise; rise
B) fall; rise
C) rise; fall
D) fall; fall

Question

Quizplus · Accepted Answer

During periods of business cycle expansion, the demand for credit increases as businesses and consumers invest in projects and purchases. As a result, the demand for loanable funds increases, which causes the interest rates to rise. On the other hand, during periods of cyclical recession, the demand for credit decreases as businesses and consumers cut back on investments and purchases. As a result, the demand for loanable funds decreases, which causes the interest rates to fall.

The Level of Interest Rates Tends to __________ During Periods