According to the ______ effect, a lower price level decreases interest rates, which results in additional spending on investment goods and so increases the aggregate quantity of goods and services demanded.
A) money supply
B) interest rate
C) consumption
D) investment

Question

Quizplus · Accepted Answer

The correct term is the "interest rate effect." It explains how a lower price level leads to lower interest rates, which in turn encourages more investment spending, thereby increasing the aggregate demand for goods and services.

According to the ______ Effect, a Lower Price Level Decreases