Question

Why do interest rates follow the business cycle?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.During an expansion, there is downward pressure on interest rates as businesses begin to grow and borrow more money.Interest rates tend rise during economic expansion and decline during recessions.Typically, the Fed tightens credit to stimulate the economy, which puts further downward pressure on interest rates.

Answer 1

Answer:

The correct answer is letter "C": Interest rates tend rise during economic expansion and decline during recessions.

Explanation:

The expansion is the period of the economy that represents grow. Because of the prosperity atmosphere, people and businessmen request loans frequently pushing central banks and governmental entities to raise the interest rates to slow down the economy to prevent a recession. The recession itself is the period where the economy is contracted or reduced. In this case, the central banks and governmental entities decrease the interest rates to stimuli economy through loans and purchases.