Answer to Question #130824 in Macroeconomics for Maite Letsoalo

Question

explain with the aid of a graph the impact of a cut in the interest rate on the demand for money

Answer 1

The above graph shows the impact of a cut in the interest rate on the demand for money.

Cut in interest makes it cheaper to borrow money. Hence encouraging spending and investment.

Therefore causing a rise in aggregate demand (AD).

Then it will lead to an increase in real GDP (higher rate of economic growth) and an increase in the inflation rate