The interest rate effect operates through
A) credit markets by changing borrowing costs.
B) the purchasing power of individuals' checking accounts.
C) government spending levels.
D) labor supply.

Question

Quizplus · Accepted Answer

The interest rate effect operates through credit markets by changing borrowing costs. When interest rates increase, borrowing becomes more expensive, which can decrease the amount of borrowing and investment that takes place in the economy. Conversely, when interest rates decrease, borrowing becomes cheaper, which can increase borrowing and investment. This can have a significant impact on economic activity and growth.

The Interest Rate Effect Operates Through