When the central bank of an economy raises interest rates, _____.
A) aggregate demand will rise
B) aggregate supply will increase
C) both aggregate demand and aggregate supply will remain constant
D) aggregate demand will decrease

Question

Quizplus · Accepted Answer

When the central bank raises interest rates, borrowing becomes more expensive, which tends to reduce spending and investment. This decrease in spending and investment leads to a decrease in aggregate demand.

When the Central Bank of an Economy Raises Interest Rates