The interest-rate effect
A)depends on the idea that increases in interest rates increase the quantity of money demanded.
B)depends on the idea that increases in interest rates increase the quantity of money supplied.
C)is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.
D)is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.

Question

Quizplus · Accepted Answer

The interest-rate effect is the idea that higher interest rates lead to lower levels of investment and consumption spending, thereby decreasing aggregate demand. This is one of the main reasons why the aggregate-demand curve slopes downward in the United States. Therefore, option C is the correct choice. Options A and B are incorrect because they do not accurately describe the interest-rate effect. Option D is incorrect because, as stated earlier, the interest-rate effect is one of the key reasons for the downward slope of the aggregate-demand curve.

The Interest-Rate Effect