Answer to Question #137172 in Macroeconomics for Ekua

Question

Assume that the central bank announces a rise in interest rates and backs this up with open-market operations. What determines the size of the resulting fall in aggregate demand?

Answer 1

Higher interest rates; this will increase the cost of borrowing for companies and customers making spending to tend to reduce or grow at a slower rate, depending on the range of the increase in interest rates.