Graphically illustrate the impact of a decrease and increase in the interest rate on aggregate expenditure. On your graph, illustrate the impact of an increase and decrease in the interest rate upon aggregate expenditure. Summarize the relationship among changes in the rate of interest (r), the change in planned investment spending (I), its impact on the aggregate expenditure function (AE), and the multiple effect on income (Y).
Definitions:
Inflation Rate
The percentage rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Quantitative Easing
A monetary policy used by central banks to increase the money supply by buying government securities or other securities from the market.
Central Bank
A national bank that provides financial and banking services for its country's government and commercial banking system and implements monetary policy.
Economic Growth
An increase in the production of goods and services in an economy over time, typically measured as the percentage increase in real GDP.
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