Question : Statement 1: Changes in interest rates affect aggregate demand.
Statement 2: Changes in technology affect aggregate supply.
Which statement is correct?
Option 1: Only Statement 1
Option 2: Only Statement 2
Option 3: Both Statement 1 and Statement 2
Option 4: Neither Statement 1 nor Statement 2
Correct Answer: Both Statement 1 and Statement 2
Solution : The correct answer is (C) Both Statement 1 and Statement 2
Statement 1 Changes in interest rates can have a significant impact on borrowing costs, investment decisions, and consumer spending. When interest rates decrease, it becomes cheaper to borrow money, which can stimulate investment and consumer spending, thereby increasing aggregate demand. Conversely, when interest rates increase, borrowing becomes more expensive, leading to a decrease in investment and consumer spending, and a decrease in aggregate demand.
Statement 2 is also correct. Technological advancements and changes in technology can have a significant impact on the level of aggregate supply. Improved technology can increase productivity, efficiency, and output levels, leading to an increase in aggregate supply. Conversely, a lack of technological advancements or outdated technology can hinder productivity and limit the potential level of aggregate supply.
Therefore, the correct answer is C) Both Statement 1 and Statement 2. I apologize for the confusion caused by my previous response.
