EXPLAIN WHAT HAPPENS TO AGGREGATE DEMAND IN EACH OF THE FOLLWING CASES: 1)THE INTEREST RATE RISES.2)WEALTH FALLS 3)BUSINESS TAXES RISE.
If interest rates rise, aggregate demand goes down. This is because consumers and firms will not want to borrow as much money to buy big ticket items. A person will be less willing to borrow to buy a new car, a firm will be less likely to borrow to buy new machinery.
If wealth falls, aggregate demand goes down as well. People feel less wealthy and less confident and do not want to buy as much. This is one reason why drops in house prices and the stock market make AD go down.
Business taxes increasing should also reduce AD because businesses will not want to invest.
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