An increase in interest rates:
A) decreases aggregate demand, slowing economic activity.
B) decreases aggregate demand, increasing economic activity.
C) increases aggregate demand, slowing economic activity.
D) increases aggregate demand, increasing economic activity.

Question

Quizplus · Accepted Answer

When interest rates increase, the cost of borrowing money becomes higher, which leads to a decrease in consumer and business spending. This decrease in spending leads to a decrease in aggregate demand, which in turn slows down economic activity.

An Increase in Interest Rates