Explain how the business cycle affects the long term and short term interest rates

Business Dec 23, 2020

Explain how the business cycle affects the long term and short term interest rates.

Expert Solution

The Short-Term Debt Cycle

Debts are given over a short period of time preferably 5-7 years and their interest rates are low. The low-interest rates make credit more attractive and many businesses and individuals borrow more money thus driving demand. An increase in demand increases the value of assets like homes and businesses. The increased asset value increases people's net worth and credit profiles thus allowing them to borrow more and grow their income in the future.

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