When deriving the aggregate demand (AD) curve from the aggregate expenditures model, an increase in U.S. product prices would cause an increase in
A) the value of household wealth and lower consumption expenditures.
B) interest rates and lower investment expenditures.
C) exports and imports.
D) U.S. resource prices and an increase in aggregate supply.

Question

Quizplus · Accepted Answer

An increase in U.S. product prices typically leads to higher interest rates as the central bank may raise rates to combat inflation. Higher interest rates increase the cost of borrowing, which can reduce investment expenditures by businesses.

When Deriving the Aggregate Demand (AD) Curve from the Aggregate