The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off
A)government spending.
B)government spending and unplanned investment.
C)investment and consumption spending.
D)net exports.

Question

Quizplus · Accepted Answer

An increase in the price level results in an increase in the demand for money, which raises interest rates. As a result, investment and consumption spending decrease, leading to a slowdown in economic growth. Net exports are not directly affected by the interest rate effect. The government spending and unplanned investment may also be affected, but they are not the only consequences of the interest rate effect.

The "Interest Rate Effect" Can Be Described as an Increase