An increase in U.S. interest rates causes a decrease in aggregate demand by _____ investment spending, _____ the dollar, and _____.

Question

Quizplus · Accepted Answer

An increase in interest rates leads to higher borrowing costs which can reduce investment spending (hence decreasing aggregate demand). This can also cause an appreciation of the dollar, making exports more expensive and potentially reducing demand for U.S. goods abroad, leading to an increase in imports. Therefore, choice B is the best answer.

An Increase in U