The "wealth effect" of lower interest rates is that bond prices are __________ so people respond to this by __________ consumption and thus __________ aggregate demand.

Question

Quizplus · Accepted Answer

Lower interest rates lead to higher bond prices, which creates a feeling of wealth among bondholders. As a result, people tend to spend more (increasing consumption) which leads to an increase in aggregate demand.

The "Wealth Effect" of Lower Interest Rates Is That Bond