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

A decrease in interest rates increases investment, which raises aggregate demand. This initial increase leads to further increases in aggregate demand due to the multiplier effect, where increased income from the initial investment leads to more consumption and thus more induced expenditures.

Assume a Decrease in Interest Rates Causes an Initial Increase