What is the relationship between Downward Sloping Demand curve , Interest rate and Price ? Explain with example
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Interest rate and demand are inversely related . As the rate rises demand for goods decline and prices also decline
Whenever the price of goods & services in the economy rise, it reduces the purchasing power of people and causes wealth of people to fall. A fall in wealth means there would be less consumption of goods & services by people as now they are spending less. If they spend less, the Aggregate Demand of the country will fall.
Whenever the price of goods & services in the economy rise, it reduces the money supply in the economy and if money supply is reduced then the interest rates will rise, a rise in interest rates would lead to an increase in borrowing costs and Consumption & Investment will fall which will ultimately lead to a fall in AD of the country.