The interest rate effect conducts to a downward sloping aggregate demand curve, as a higher price level causes consumption to decrease and investment to fall.
What is interest rate?
The sum of interest owed every period that is expressed as a percentage of the amount lent, borrowed, or deposited is known as an interest rate.
The total interest paid on a loan or a loan is determined by the principal amount, the interest rate, the compounding rate, and the dimension of time it is lent, deposited, or borrowed.
The effect of interest rate leads to the downward sloping in the demand curve because as the prices higher, the level of consumption would be caused to decreased and the investment would also fall.
Therefore, interest rate is expressed in the percentage that is charged by the lender for the use of its money or property.
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