Decreases in Interest Rates Have Made It Less Costly to Finance

question 219

Multiple Choice

Decreases in interest rates have made it less costly to finance purchases of new houses. What impact will this have on U.S. aggregate demand?

• A) None. A nation's aggregate demand is not affected by changes in interest rates.
• B) U.S. aggregate demand will remain unchanged.
• C) U.S. aggregate demand will decrease.
• D) The U.S. aggregate demand curve will shift to the right.

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Definitions:

Interest Rate Risk

The potential loss in value of an investment due to a change in interest rates.

Junk Bonds

Junk bonds are high-yield bonds that carry a higher risk of default compared to investment-grade bonds, offering higher interest rates to compensate for the increased risk.

Interest Rate Risk

The potential for investment losses due to fluctuations in the interest rates, affecting the value of interest-bearing assets like bonds.

Variable Rate Coupons

Bonds or other loans that have interest payments adjusted at periodic intervals based on a reference interest rate.