Of all of the components of aggregate demand, the most interest sensitive is:
A) investment.
B) government purchases.
C) consumption.
D) net exports.

Question

Quizplus · Accepted Answer

Investment is the most interest-sensitive component of aggregate demand because it often requires firms to borrow money in order to finance large projects or purchases. When interest rates are high, the cost of borrowing becomes more expensive, and firms may be less inclined to invest in these projects, which can lead to a decrease in overall aggregate demand. Conversely, when interest rates are low, firms may be more willing to borrow and invest in new projects, which can boost aggregate demand.

Of All of the Components of Aggregate Demand, the Most