What Is the Interest Rate Effect That Explains Why the Aggregate

question 115

Multiple Choice

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

• A) It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates.
• B) It refers to the effect of interest rates on borrowing which in turn affects consumption spending.
• C) It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded.
• D) It refers to the shifts in aggregate demand when interest rates change.

---

Definitions:

Joint Cost

The costs incurred in producing products up to a split-off point in a process that yields multiple products, typically allocated among the products based on some reasonable method.

Split-off

A point in the manufacturing process where multiple products are generated from a common input.

Opportunity Cost

The potential benefit lost when choosing one alternative over another.

Excess Capacity

The amount by which current production capabilities exceed the current demand for a company's products or services.