00:01
Let's talk about this question.
00:03
So aggregate demand is the total level of spending in the economy.
00:15
So it's going to contribute to gdp.
00:22
If aggregate demand goes up, so does gdp.
00:24
And if it goes down, gdp will also go down.
00:29
So then with higher interest rates, let's talk about what happens to cash flow.
00:36
So it becomes more expensive to pay back a loan.
00:57
So we're going to have to use more cash to pay this back.
01:12
So because we're using the cash to pay back our higher interest rates on the borrowed money, there's going to be less money available for spending and investment.
01:38
So therefore, aggregate demand goes down and then gdp is also going to go down.
01:58
So looking further into the effect on cash flow, an increase in interest rates causes the discount rate to rise because we have more opportunities to do more with our money elsewhere.
02:25
And discount rates and present values are inversely related.
02:28
So that decreases the present value of cash.
02:34
So value declines as a result of interest rates...