Question

(1)
What happens to aggregate demand in an economy. when credit
availability is restricted and credit is made costlier ​

Answer 1

Answer:

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Answer 2

In Macroeconomics,if the credit availability is restricted by the Central Bank and the credit facilities are made more stringent,then the Aggregate Demand(AD) will fall,considering all other factors affecting AD constant.

Explanation:

The Aggregate Investment(AI) is a component of AD and any fluctuations in AI will automatically impact AD.Now,less availability of credit and more restrictions on credit policies and provisions would create a deterrence to the business organizations and companies to avail the credit opportunities and facilities in the economy.This would discourage the existing businesses and firms from engaging in any further business projects or operations.Therefore,capital investment in most economic sectors will decline which will adversely affect the AI as well.Now,as AI decreases,the AD will also fall consequently.Lower capital investment and AI in the economy also entails an eventual decrease in the overall production level of goods and services in the economy.