In a situation of inflationary pressure, an increase in the overnight loans rate results in
A)an increase in real GDP and the price level.
B)an increase in real GDP, but a fall in the price level.
C)an increase in real GDP, but no change in the price level.
D)a rise in the price level, but no change in real GDP.
E)a fall in the price level and a decrease in real GDP.

Question

Quizplus · Accepted Answer

An increase in the overnight loans rate typically leads to higher borrowing costs, reducing spending and investment, which can decrease real GDP and lower the price level.

In a Situation of Inflationary Pressure, an Increase in the Overnight