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MissTica
3 years ago
11

What is the relationship between interest rates and aggregate spending?

Business
2 answers:
olya-2409 [2.1K]3 years ago
7 0

Answer:

Image result for What is the relationship between interest rates and aggregate spending?

How does the real interest rate change the level of economic output? Higher real interest rates reduces aggregate expenditure by increasing the cost of loans while increasing the earnings from savings. Both factors reduce expenditures by reducing consumption and investments, and therefore, aggregate expenditure.

Explanation:

goldfiish [28.3K]3 years ago
4 0

"If interest rates are higher, people will be less willing to put what little money they have into investments. Since Investments are part of the aggregate demand, the quantity of aggregate expenditures will go down, showing a negative relationship between price and aggregate expenditures."

(source: http://www.econport.org/content/handbook/ADandS/AD/Effects.html)

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In the question, $60,000 was the purchase price, the transportation cost of $1,000 was necessary to bring the asset to the location intended by management, $3,000 was the sales tax and the installation cost of $2,500 was also necessary for the asset to function as intended by management. So all these costs would be capitalized as the cost of the equipment as $66,500.

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