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.

---

Definitions:

Dividends

Money paid out to shareholders by a corporation, usually as a share of profits.

Retained Earnings

Profits that a company keeps or reinvests, rather than distributing to stockholders as dividends.

New Stock

Issuance of additional shares by a company to raise capital, which can dilute existing shareholders' ownership percentage.

New Equity

Capital raised by a company through the issuance of common or preferred stock, increasing the shareholders' equity.