The less sensitive to the interest rate are consumption expenditure and investment, the smaller is the shift in the AD curve when the Fed changes the federal funds rate.

Question

Quizplus · Accepted Answer

When consumption expenditure and investment are less sensitive to interest rate changes, adjustments in the federal funds rate by the Federal Reserve will have a smaller impact on aggregate demand, leading to a smaller shift in the AD curve. This is because changes in the interest rate would not significantly alter spending behaviors.

The Less Sensitive to the Interest Rate Are Consumption Expenditure