Question

1.

Which of the following best describes the interest rate effect?

Group of answer choices

a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending.

an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

2.

Which one of the following would shift the aggregate demand curve to the left?

Group of answer choices

A decrease in the expected rate of return in the economy.

Increase in incomes in Europe, a major trading partner.

A decrease in the level of household debt.

A decrease in the real rate of interest.

Answer 1

1. Option C.

• When the price level increases, people will demand to hold more money in their hands rather than spending them.
• This will increase the demand for money and at the same time increase the interest rates within the economy.
• This increase in interest rate will naturally Decrease the consumption and investment spending within the economy.

2. Option A.

• When the expected rate of return from any investment decreases within an economy, the demand for various assets or securities fall.
• This will cause the aggregate demand curve to shift to the left.