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 ▸What is a negative externality and how can it be corrected?
Evaluate the view that a depreciation of a nations currency, will always be a benefit to it's economy.
How to define the term "external costs"
Explain the factors which might determine the natural rate of unemployment (15 marks)