Mathematics

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.
b is wrong

2 Answer

  • ( C ) In a weak economy there is less demand for credit, so the price drops.


  • Answer:

    The correct answer is C.

    Step-by-step explanation:

    A. It is false because when the inflation is low then the interest rate increases.

    B. Borrowers in a weak economy are less likely to default on their loans does not implies that the interest rate will be low. So, False

    C. The lower interest rates benefits weaker economy people as it encourages them to make large equipment purchases due to the low cost of borrowing.So, if the demand is low then the cost will surely drops.

    D. The interest rate does not implies the strength or weakness of the economy because sometimes a weaker economy also has high interest rates.

    Hence, the correct statement is C. In a weak economy there is less demand for credit, so the price drops.

NEWS TODAY