Explain how the interest rate effect can increase aggregate demand
What will be an ideal response?
In an economy with a fixed supply of money, price level changes lead to interest rate changes. If price levels drop, interest rates fall. When interest rates fall, both consumers and businesses will find it cheaper to borrow money to make purchases. The increases in consumer and business spending increase aggregate demand.
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Everything else held constant, a decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds, and ________ the demand for U.S. government bonds
A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasing
If a 20% change in price results in a 15% change in quantity supplied, then the price elasticity of supply is about
a. 1.33, and supply is elastic. b. 1.33, and supply is inelastic. c. 0.75, and supply is elastic. d. 0.75, and supply is inelastic.