Suppose interest rates increase from 1 percent to 3 percent.In the short run,one can expect output in the United States to ________ and the price level to ________.
A) increase; increase
B) decrease; decrease
C) decrease; increase
D) increase; decrease
E) remain unchanged; remain unchanged

Question

Quizplus · Accepted Answer

In the short run, an increase in interest rates typically leads to a decrease in output as borrowing costs rise, reducing investment and consumer spending. This decrease in demand can also lead to a decrease in the price level.

Suppose Interest Rates Increase from 1 Percent to 3 Percent