ECON101 General Level of Interest Rates Stock Price and Yield Curve Discussion

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Economics

ECON101

Description

As you know, the business cycle refers to the up (expansion) and down (recession) of economic activity over time as measured by real GDP. Briefly, explain how these ups and downs affect the following variables. In other words, I want you to show your understanding of how each of these variables move when there is a recession and again when there is economic expansion. In addition, a sentence or two explaining why it moves that way. I will be looking first for correctness in your initial answer and then your secondary responses to other people's answers. (I will post 2 classmate's work later so you can just finish the discussion first)

- General level of interest rates

- Real interest rates

- Yield Curves

- Stock prices

- Bond prices

- Inflation

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Explanation & Answer

Attached.

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Course
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1

Economics
General level of interest rates
The general level of interests rates is affected when there is and expansion or recession in
the economy. There is a lot of money supply in the economy during expansion of the economy
hence causing a decline in the general level of interest rates. Many people are therefore, able to
borrow money from financial institutions since the rates of interests are low hence increasing
consumer spending (Peri, G. (2010). During recession, the level of interest rates is high.
Individuals do not borrow money from banks due to the high interest rates which lowers their
levels of spending.
Real interest rates
Real interest rates are also affected by expansion or recessi...


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