Question

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which, in turn, reduces consumption and investment spending. This effect is called the

Answer 1

This effect is called the interest rate effect.

What is interest rate effect?

• The loan cost impact alludes with the impact of an increment or decline in total interest in an economy because of changes in loan costs set by the national bank of a country.
• Loan fees have an opposite relationship with total interest. At the point when rates are high, request is low and bad habit versa. Because higher loan fees mean higher getting costs, individuals will ultimately begin spending less.
• The interest for labor and products will then drop, which will make expansion fall. Likewise, to battle the rising expansion in 2022, the Fed has been expanding rates over time.

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