215k views
9 votes
What is the relationship between interest rate, aggregate income, and price level?.

User RayB
by
5.6k points

1 Answer

13 votes

A decrease in income will lead to a decrease in price level and a decrease in the interest rate.

What is the relationship between these variables?

When income declines, there would a decrease in demand and this would lead to a decline in price levels. When price levels fall, interest rate also decline. Thus, there is a positive relationship between these variables.

User Blacky
by
5.6k points