Question

The interest-rate effect

a.
is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

b.
depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.

c.
is responsible for the downward slope of the money-demand curve.

d.
depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded.

Answer 1

The interest rate effect reflects the fact that most consumers and business finance managers will cut back on their borrowing activities when interest rates increase and vice versa.
So, the interest-rate effect depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.
Correct answer is b.