ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When interest rates rise, it becomes more “expensive” to borrow money. That borrowed money would typically go toward consumer expenditures and capital investment, and so these two sectors diminish under higher interest rates. Therefore aggregate demand decreases, per the equation.

Detailed explanation-2: -Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment. This leads to higher aggregate demand (AD) and economic growth.

Detailed explanation-3: -The aggregate demand curve tends to shift to the left when total consumer spending declines. 2 Consumers might spend less because the cost of living is rising or because government taxes have increased. Consumers may decide to spend less and save more if they expect prices to rise in the future.

Detailed explanation-4: -Answer and Explanation: An increase in the interest rate causes the aggregate demand curve to shift leftward.

Detailed explanation-5: -Higher interest rates make it more expensive for people to borrow money and encourage people to save. Overall, that means people will tend to spend less. If people spend less on goods and services overall, the prices of those things tend to rise more slowly. Slower price rises mean a lower rate of inflation.