Answer to Question #219432 in Microeconomics for kitto

Question

1.    The level of aggregate output demanded rises when the price level falls, because the resulting decrease in the interest rate will lead to

a.     higher investment spending and higher consumption spending.

b.    lower investment spending and higher consumption spending.

c.     higher investment spending and lower consumption spending.

d.    lower investment spending and lower consumption spending.

Answer 1

A. higher investment spending and higher consumption spending.

EXPLANATION

If consumption increases i.e. consumers are spending more, therefore aggregate demand for goods and services will increase. Additionally, if investment increases i.e. if there is a fall in interest rates, then production will increase as technology improves and output increases. Therefore, demand will rise.