In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve
What will be an ideal response?
Reducing the interest rate lowers the cost of borrowing to firms and to households. As a result, both firms and households will increase expenditures. This increase in expenditures will shift the aggregate demand curve to the right.
You might also like to view...
Under the liquidity premium theory the shape of the yield curve depends on
A) the relative return of investments in common stocks versus investments in corporate bonds. B) the size of the federal government's budget deficit. C) government tax treatment of long-term versus short-term bonds. D) the expected pattern of future short-term rates and the size of the term premium at each maturity.
Refer to Scenario 5.4. What is the variance of the investment?
A) -75 B) 275 C) 3,150 D) 4,637.50 E) 8,125