Answer to Question #63858 in Macroeconomics for elizabeth

Question

If the federal reserve increases interest rates does this affect aggregate demand or aggregate supply? increases or decreases?

Answer 1

If the federal reserve increases interest rates does this affect aggregate demand, because if the price increases, the sale and purchase of the previous number of goods requiring more money. The demand for money increases. At a constant money supply leads to a rise in interest rates. Raising interest rates reduces investment and consumption through credit. The value of aggregate demand decreases.