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Homework answers / question archive / Which phase of the business cycle would interest rates and inflation be at the lowest levels compared to other phases of the business cycle? a) Expansionary phase of the business cycle b) Recessionary phase of the business cycle c) Recovery phase of the business cycle d) A Depression phase of the business cycle
Which phase of the business cycle would interest rates and inflation be at the lowest levels compared to other phases of the business cycle?
a) Expansionary phase of the business cycle
b) Recessionary phase of the business cycle
c) Recovery phase of the business cycle
d) A Depression phase of the business cycle
The correct option is b) Recessionary phase of the business cycle
Explanation:
The recessionary phase of the business cycle explains that the economy is facing reduced aggregate demand in the economy due to which producers produce lesser products and services. It is the phase when producers reduce their price level to increase the aggregate demand, and that results in a decrease in the inflation rate. At the same time, the government reduces the interest rate to encourage people to hold money and make spending in the economy. Therefore, the recessionary phase is the phase with lower inflation and interest rate in the economy.
