What does the interest-rate effect explain?
A)The shape of the aggregate demand curve.
B)The shape of the aggregate supply curve.
C)The change in the aggregate demand curve.
D)The change in the aggregate supply shifts.
E)The change in economic growth.

Question

Quizplus · Accepted Answer

The interest-rate effect explains the inverse relationship between the level of interest rates and the quantity of goods and services demanded, resulting in the downward slope of the aggregate demand curve. As interest rates increase, the cost of borrowing increases, leading to a decrease in consumer spending and business investment, which ultimately reduces the demand for goods and services. On the other hand, when interest rates decrease, borrowing becomes cheaper, leading to an increase in spending and investment, resulting in an increase in aggregate demand.

What Does the Interest-Rate Effect Explain