Question
b. The economy moves through business cycles, with periodic expansions, when economic activity is higher than average, and economic slowdowns, which, if severe enough, can
b. The economy moves through business cycles, with periodic expansions, when economic activity is higher than average, and economic slowdowns, which, if severe enough, can lead to a recession. During expansion periods the volume of loanable funds available from the financial system tends to increase and real interest rates tends to rise. With this information, explain the following:
1- why does the demand of loanable funds tend to increase during expansions?
2- why does the supply of loanable funds tend to increase during expansions?
3- does the supply of loanable funds tend to increase by more or less the demand during expansions?
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