loans dropped. Lower rates, however, did not spark a demand for more business loans. When the California economy began to turn around, however, business once again could put borrowed money to productive use, and the demand for business loans began to rise. As the demand for business loans began to rise, so too did the cost of such loans.
Commercial loans are different from consumer loans. Variations in the cost of money for consumer loans do influence the demand for such loans. With respect to commercial loans, however, the causal relationship is different·variations in demand influence the cost of money for such loans to a much greater extent that is true for the reverse relationship.
Thus, the future demand for commercial loans in California will be driven by consumer demand for the goods produced by California businesses. In late-1995, the demand for such goods is high; thus, the demand for commercial loans in California may be expected to be similarly high. If the demand for commercial loans remains high as expected, the cost of money fo
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