Question

Why do interest rates on loans tend to be lower in a weak economy than in a strong one?
a.
A weak economy tends to have low inflation, so interest rates drop to match.
b.
Borrowers in a weak economy are less likely to default on their loans, so interest rates are correspondingly low.
c.
In a weak economy there is less demand for credit, so the price drops.
d.
The strength or weakness of an economy is determined by interest rates; low interest rates actually cause a weak economy.

Answer 1

Step-by-step explanation:

Borrowers in a weak economy are less likely to default on their loans, so interest rates are correspondingly low.

Answer 2

Interest rates on loans tend to be lower in a weak economy because (c)In a weak economy there is less demand for credit, so the price drops.

Explanation:

• Interest rates have a key role in the economy as they play an important part in the process of the economic expansion and recession cycles .
• Interest rates in the economic markets are the result of the interaction of credit demand and supply.
• we see falling interest rates during recessions as a central bank can use various monetary policies to counter- back the normal forces of demand and supply to reduce these interest rates.