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
Answered by Helen S. Economics tutor

1946 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Do subsidies to producers always correct market failure? As an essay style question.


Why do we study microeconomics?


How do I answer an economics essay question?


What are the different types of price discrimination that can be employed?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences