5D AD/AS model Macro Flashcards
1
Q
A
1
Q
How will decreased interest rate affect AD
A
AD = C+I+G+ (X-M)
I increases :
decreased interest rate, fall in cost of borrowing for firms to finance investment spending
Previously lower expected return firms now profitable, more firms willing to invest, vol investment increases, I increases
Vol of investment (indpt) inversely related interest rate % (dpt)