ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Lowering interest rates will cause investment (I) to rise, and hence aggregate expenditure will rise too, so for each given price level the Aggregate Demand curve will shift to the right leading to higher output and lower unemployment.

Detailed explanation-2: -A change in interest rates that results from a change in the price level affects investment in a way that is already captured in the downward slope of the aggregate demand curve; it causes a movement along the curve. A change in interest rates for some other reason shifts the curve.

Detailed explanation-3: -The Effect of Interest Rates on Aggregate Demand If interest rates decline, there will be an opposite effect. Individuals and businesses want to borrow more money at lower interest rates and invest this money in capital and consumer purchases. Therefore aggregate demand will increase.

Detailed explanation-4: -When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.