Aggregate demand is negatively related to interest rates because
A)higher interest rates encourage consumption
B)higher interest rates encourage saving and deferring consumption
C)new houses are usually financed by borrowing
D)changes in interest rates affect exchange rates

Question

Quizplus · Accepted Answer

When interest rates are higher, individuals and businesses are more incentivized to save their money instead of spending it. This decreases the overall demand for goods and services, leading to a decrease in aggregate demand.

Aggregate Demand Is Negatively Related to Interest Rates Because