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Personal Savings. Personal savings determine interest rates, since interest is just a price for borrowing money. If there are a lot of savings (like during a recession), then money supply is high and interest rate is low. If there is a lot of investing (like during an expansion), then money supply is low and interest rates are high.
By definition a business cycle is the repeating process of savings exceeding investing and vice versa.
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c.) interest rates Because,
Business cycle has four stages: (i) expansion (increase in production and prices, low interests rates); (ii) crisis (stock exchanges crash and multiple bankruptcies of firms occur); (iii) recession (drops in prices and in output, high interests rates); (iv) recovery (stocks recover because of the fall in prices and incomes).so interest rates comes in first stage hence a main economic variable
Interest rates could be an economic variable that affect business cycles. I say this because as a variable interest rates fluctuate in economies. The rate of the interest affects the way business functions. Loans for example are affected by interest rates. Thank you and have a great day.