As the price level rises
A) the average price of all goods and services falls.
B) total output demanded rises proportionately.
C) interest rates rise if the money supply is held constant.
D) the aggregate supply curve shifts back and forth.
E) the demand for money falls.

Question

Quizplus · Accepted Answer

When the price level rises, there is an increase in inflation, which causes interest rates to rise if the money supply is kept constant. This is because lenders need to be compensated for the decrease in the purchasing power of money due to inflation.

As the Price Level Rises