Why Do Interest Rates Follow the Business Cycle

question 35

Multiple Choice

Why do interest rates follow the business cycle?

• A) Typically, the Fed tightens credit to stimulate the economy, which puts further downward pressure on interest rates.
• B) Interest rates tend rise during economic expansion and decline during recessions.
• C) During an expansion, there is downward pressure on interest rates as businesses begin to grow and borrow more money.
• D) During a recession, the demand for goods and services is lower, businesses borrow more, and as a result the economy slows down and the interest rates decline.

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Definitions:

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