Question

The interest rate determines ______ in the goods market and money ______ in the money market. investment spending; demand government spending; supply government spending; demand investment spending; supply

Answer 1

Demand, Investment spending; Supply

Step-by-step explanation:

In the goods market, interest rates are directly related to the investment decisions and aggregate demand. A higher interest rate usually means that the cost of borrowing is high and this results in lesser investment. Furthermore as people can get more reward fro saving, they consume less of their incomes and save more. Saving more means that they demand less goods and services.

In the money market, interest rates are directly related to the demand and supply of money. A higher interest rate means that there is less credit creation by the banks and as more people save, the supply of money contracts.

Hope that helps.