Aggregate demand decreases when
A) interest rates fall.
B) consumers become more optimistic.
C) government reduces net taxes.
D) interest rates rise.
E) government spending increases.

Question

Quizplus · Accepted Answer

Aggregate demand is the total demand for goods and services in an economy. It is determined by several factors, one of which is the interest rate. When interest rates rise, the cost of borrowing increases, leading to a decrease in consumer spending and investment. This, in turn, leads to a decrease in aggregate demand. Therefore, option D is the correct answer.

Aggregate Demand Decreases When