Using an aggregate demand graph, illustrate the impact of an increase in the interest rate

What will be an ideal response?


The increase in the interest rate will cause consumption expenditures and investment expenditures to decline. This will result in a parallel leftward shift in the aggregate demand curve. We start on the curve AD1 and the increase in the interest rate will move us to AD2. At the price level P1, the demand for real GDP declines from Y1 to Y2.

Economics

You might also like to view...

Scarcity exists because

A. of unlimited resources. B. human wants are enormous relative to the means available to satisfy them. C. production is limited only by technology and human energy. D. advertising creates unnatural desires for surplus goods.

Economics

An insurance company offering both high-deductible and low-deductible plans is an example of:

A. signaling. B. statistical discrimination. C. building a reputation. D. screening.

Economics

For a perfectly competitive firm, marginal revenue is identical to marginal cost at every quantity

a. True b. False

Economics

Indicators of economic activity that move at the same time as the overall economy are called ________ indicators.

A. real B. coincident C. long-term D. short-term

Economics