A rise in the price level prompts an increase in the demand for credit.This is relevant to the __________ effect.
A) international trade
B) real balance
C) aggregate demand
D) interest rate
E) b and c

Question

Quizplus · Accepted Answer

The rise in price levels increases inflation expectations, which in turn causes lenders to demand higher interest rates for lending money, resulting in a decrease in the supply of credit. As a result, the demand for credit increases, which is relevant to the interest rate effect. Therefore, the correct answer is D.

A Rise in the Price Level Prompts an Increase in the Demand