The components of aggregate expenditure that depend negatively on the interest rate are:
A)consumption, investment and government expenditure
B)investment, government expenditure and net exports
C)consumption, investment and net exports
D)consumption, taxes and net exports

Question

Quizplus · Accepted Answer

The components of aggregate expenditure that depend negatively on the interest rate are consumption, investment, and net exports. Consumption and investment decrease as interest rates increase because it becomes more expensive for households and businesses to borrow money. Similarly, net exports decrease as interest rates increase because a higher interest rate encourages foreign investors to invest in that country, leading to an appreciation of the currency and a decrease in net exports. Government expenditure and taxes are not affected by changes in interest rates. Therefore, the correct choice is C.

The Components of Aggregate Expenditure That Depend Negatively on the Interest