How does an increase in the price level result in higher interest rates?
A) It increases the real money supply.
B) It decreases the real money supply.
C) It increases the real money demand.
D) It decreases the real money demand.

Question

Quizplus · Accepted Answer

An increase in the price level decreases the purchasing power of money, leading to a decrease in the real money supply. This reduces the supply of funds available for borrowing, increasing the demand for funds and leading to higher interest rates.

How Does an Increase in the Price Level Result in Higher