How Does the Interest Rate Effect Help Explain Why the Aggregate

question 110

Multiple Choice

How does the interest rate effect help explain why the aggregate demand curve is downward-sloping?

• A)Because it suggests that a lower price level causes a higher interest rate and therefore a lower level of aggregate expenditures.
• B)Because it suggests that a lower interest rate causes a higher price level and therefore a lower level of aggregate expenditures.
• C)Because it suggests that a lower price level causes a lower interest rate and therefore a higher level of aggregate expenditures.
• D)Because it suggests that a lower interest rate causes a lower price level and therefore a higher level of aggregate expenditures.

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Definitions:

Capillary Bed

A capillary bed is a network of capillaries, which are small blood vessels, where exchange of water, oxygen, carbon dioxide, and many other nutrient and waste chemical substances occur between blood and surrounding tissues.

Sinusoid

Terminal blood vessel having a larger diameter than an ordinary capillary.

Precapillary Sphincter

Smooth muscle sphincter that regulates blood flow through a capillary.

Relaxation

The state of being free from tension and anxiety, or the act of making something less tight.