Interest rates usually rise during the contraction phase of the business cycle

Business Dec 23, 2020

Interest rates usually rise during the contraction phase of the business cycle.

(a) true

(b) false

Expert Solution

(b) false

Under the Deep economic contraction phase, all economic factors like income, output, employment, demand, profit, interest, wages have a tendency to contract. During business-cycle contraction, income level falls, as a result, the money demand curve shifts to the left. As a result, the interest rate falls.

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