Assume a decrease in interest rates causes an initial increase in desired investment and aggregate demand.Additional increases in aggregate demand will
A)Be caused by multiplier-induced increases in autonomous investment.
B)Be caused by increases in induced expenditures.
C)Be insignificant compared to the initial increase.
D)Not occur.

Question

Quizplus · Accepted Answer

Increases in aggregate demand following an initial increase due to lower interest rates are primarily driven by increases in induced expenditures, as the initial investment leads to higher income and consumption, further amplifying the initial effect through the multiplier process.

Assume a Decrease in Interest Rates Causes an Initial Increase