Question

Suppose that interest rates decrease. Holding everything else constant, determine what happens to aggregate demand and its components. If interest rates decrease, consumption . If interest rates decrease, investment . If interest rates decrease, government spending . If interest rates decrease, the value of net exports . Answer Bank does not change decreases increases Overall, aggregate demand

Answer 1

Answer:

When interest rates decrease, It causes a ripple effect in the economy that stimulates growth and wealth creation. In the long run, it might cause inflation.

Explanation:

• If interest rates decrease, consumption increases because there is more disposable income available in each household.
• If interest rates decrease, investment increases since the cost of borrowing is cheaper.
• If interest rates decrease, government spending decreases .
• If interest rates decrease, the value of net exports increase because the economy us stimulated as a result of a business boom facilitated by low and affordable loans.