The Reason That Higher Interest Rates Reduce Aggregate Demand in an Open

question 206

Multiple Choice

The reason that higher interest rates reduce aggregate demand in an open economy with capital flows is that investment

• A)increases generated by higher interest rates are offset by net export decreases.
• B)decreases generated by higher interest rates are coupled with net export decreases.
• C)decreases generated by higher interest rates are offset by net export increases.
• D)increases generated by higher interest rates are coupled with net export increases.

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Definitions:

Recession

A temporary phase of economic downturn characterized by a decrease in commerce and industrial production, typically recognized by a drop in Gross Domestic Product (GDP) for two consecutive quarters.

Quantity Theorists

Economists who believe that the amount of money in circulation is the primary influencing factor on overall levels of prices and inflation in an economy.

Increase in M

An increase in the money supply, referring to the total amount of money within a specific economy available for purchasing goods or services.

PQ Increase

A rise in the product of price level and quantity of goods and services produced, indicating growth in the value of economic output.