High interest rates cause spending by all households to fall, which reduces aggregate expenditure in the economy.

Question

Quizplus · Accepted Answer

While high interest rates can reduce spending by making borrowing more expensive and saving more attractive, the impact on household spending can vary. Some households may reduce spending significantly, while others may not be as affected due to differences in borrowing needs, savings, or income levels. Therefore, it's not accurate to say that high interest rates cause spending by all households to fall.

High Interest Rates Cause Spending by All Households to Fall