According to the interest rate effect,as the price level:
A) rises, people feel poorer and buy less.
B) rises, United States products become more expensive and foreigners buy less U.S. goods.
C) rises, interest rates fall, and people buy less.
D) rises, interest rates rise, and people buy less.
E) falls, interest rates fall, and people buy less.

Question

Quizplus · Accepted Answer

According to the interest rate effect, as the price level rises, interest rates rise, and people buy less. This is because higher prices lead to an increase in demand for money, causing a decrease in bond prices and an increase in interest rates. As a result, borrowing becomes more expensive, reducing the demand for goods and services.

According to the Interest Rate Effect,as the Price Level