According to the interest rate effect,an increase in the price level leads to ________ in the interest rate,and therefore to ________ in the quantity of aggregate demand.
A) no change; no change
B) a rise; a fall
C) a rise; a rise
D) a fall; a fall
E) a fall; a rise

Question

Quizplus · Accepted Answer

An increase in the price level leads to higher demand for money, which raises interest rates. Higher interest rates typically reduce investment and consumption, leading to a decrease in the quantity of aggregate demand.

According to the Interest Rate Effect,an Increase in the Price