During expansion, people make relatively high demand in the market due to which they need money to spend. There will be a direct relationship between expansion and interest rates. People demand more money to spend, which tends to pressure the interest rate to increase. For example, when an economy is experiencing an expansionary phase, there is a drastic hike in the price level and hence an increase in interest rates.

During a recession, households make lower demand for commodities due to which they hold lesser money in hand. Recession and interest rate has an inverse relation. For example, a decrease in consumption will make banks to reduce the interest rate in the economy to encourage spending.