Describe one effect of an increase in the rate of interest on the economy?
An increase in the ROI(rate of interest) would increase the reward for saving money and hence increase consumers' incentives to save. This would reduce the levels of consumption in the economy and hence reduce aggregate demand shifting the AD curve to the left (refer to AD-AS diagram) which in turn would reduce the price level creating deflationary pressures along with reducing real GDP.
HS
Related Economics A Level answers
All answers ▸The UK suffers from a persistent balance of trade deficit. what can the government do to rectify this and balance the trade figures?
why is the profit maximising output where marginal cost (MC)= marginal revenue (MR)?
Explain how a fall in interest rates would affect aggregate demand (5 marks)
What is diminishing marginal utility?