If the price level rises, the interest rate effect will cause investment:
A)and the quantity of aggregate demand to increase.
B)and the quantity of aggregate demand to decrease.
C)to increase and the quantity of aggregate demand to decrease.
D)to decrease and the quantity of aggregate demand to increase.

Question

Quizplus · Accepted Answer

When the price level rises, the interest rate effect leads to higher interest rates, which in turn discourages investment and reduces the quantity of aggregate demand.

If the Price Level Rises, the Interest Rate Effect Will