As prices rise, consumers and businesses will want to hold larger money balances. This will lead to
A) a reduction in the demand for resources and reduced resource prices.
B) an increase in the amount of goods and services demanded due to the real balance effect.
C) an increase in exports due to the international substitution effect.
D) a reduction in the supply of loanable funds and an increase in the interest rate.

Question

Quizplus · Accepted Answer

As prices rise, people need more money for transactions, reducing the supply of loanable funds, which leads to higher interest rates.

As Prices Rise, Consumers and Businesses Will Want to Hold