Why does the interest rate typically fall during economic contractions?
A) There is a high demand for loans from consumers.
B) Businesses have more retained profits and do not need to borrow from banks.
C) There is a lower demand for loans from consumers and businesses.
D) Banks are more willing to make loans and offer easier credit terms.

Question

Quizplus · Accepted Answer

During economic contractions, there is typically a lower demand for loans from both consumers and businesses. This lower demand causes banks to lower their interest rates in order to entice borrowers and stimulate economic activity.

Why Does the Interest Rate Typically Fall During Economic Contractions