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28 March, 10:03

An increase in interest rates affects aggregate demand by A. shifting the aggregate demand curve to the left, reducing real GDP and lowering the price level. B. shifting the aggregate demand curve to the right, increasing real GDP and lowering the price level. C. shifting the aggregate supply curve to the left, decreasing real GDP and increasing the price level. D. shifting the aggregate supply curve to the right, increasing real GDP and lowering the price level.

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  1. 28 March, 10:27
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    Answer: B. shifting the aggregate demand curve to the right, increasing real GDP and lowering the price level.

    Explanation: A low interest rate increases the demand for investment as the cost of investment falls with the interest rate. Thus, a drop in the price level decreases the interest rate, which increases the demand for investment and thereby increases aggregate demand.
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