1. Economic Boom

– Increased Credit Demand: During an economic boom, businesses and consumers are generally more confident about their financial future. This leads to increased spending and investment. Businesses seek to expand operations, and consumers are more likely to make significant purchases like homes and cars, often using credit.
Higher Interest Rates: As the demand for credit increases, financial institutions raise interest rates. Higher rates help balance the increased demand for loans with the available money supply. Additionally, central banks might raise interest rates to prevent the economy from overheating, which can lead to inflation.

 2. Economic Collapse

– Decreased Credit Demand: In contrast, businesses and consumers become more cautious during an economic downturn or collapse. Investment projects are postponed, and consumers cut back on spending, especially on big-ticket items that require financing.
– Lower Interest Rates: With lower demand for credit, financial institutions reduce interest rates to encourage borrowing and spending. Central banks often lower interest rates to stimulate the economy, making borrowing cheaper and enabling consumers and businesses to spend and invest more.

 Summary
In summary, interest rates tend to rise during economic booms due to increased demand for credit and proactive measures by central banks to prevent overheating and inflation. Conversely, interest rates fall during economic collapses as demand for credit decreases and central banks lower rates to stimulate economic activity.