The interest rate effect is the tendency for changes in the price level to affect:
A) the quantity of investment demanded and thus interest rates.
B) export demand and thus aggregate demand.
C) interest rates and thus the quantity of investment spending and consumption.
D) real incomes and lead to shifts in potential output.

Question

Quizplus · Accepted Answer

The interest rate effect involves changes in the price level affecting interest rates, which in turn affects the quantity of investment spending and consumption. This relationship is a key factor in the Keynesian theory of aggregate demand.

The Interest Rate Effect Is the Tendency for Changes in the Price