3 good questions and answers about "the Interest rate effect"
the investors: by deciding whether to borrow money
- an increase in aggregate price level reduces the consumer purchasing power of a given amount of money holdings
- the more money people hold the less funds available, so the interest rate increases.
- When people hold more money the save less
- when they save less the supply of money decreases
- when the supply of money decreases the price of money, the interest rate increases.
- when the interest rate increases, the demand for money decreases and investors a not willing to invest as much
- when investment decreases aggregate expenditure decreases, and planned aggregate expenditure decreases
- when planned aggregate expenditure decreases the aggregate demand shifts to the left
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