The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:
A) potential output.
B) price level.
C) consumption and investment spending.
D) government purchases.

Question

Quizplus · Accepted Answer

Interest rates have a direct impact on consumption and investment spending because they affect the cost of borrowing money. As interest rates increase, borrowing becomes more expensive, and consumers and businesses are less likely to take out loans to fund spending. This decrease in consumption and investment spending reduces the overall demand for goods and services, resulting in a negatively sloped aggregate demand curve. Interest rates do not have a direct impact on potential output or government purchases, although they can indirectly impact these components through their effect on consumption and investment spending. The price level is influenced by a variety of factors, including supply and demand conditions and factors that affect production costs, and is not directly determined by interest rates.

The Aggregate Demand Curve Is Negatively Sloped in Part Because