In the short run,a rise in the price level brings a ________ in the real interest rate that ________ investment,bringing ________ in the quantity of real GDP demanded.
A)rise;decreases;an increase
B)fall;decreases ;a decrease
C)rise;decreases;a decrease
D)fall;increases ;an increase
E)rise;increases ;an increase

Question

Quizplus · Accepted Answer

In the short run, a rise in the price level leads to an increase in the nominal interest rate, which leads to a decrease in investment. This decrease in investment leads to a decrease in the quantity of real GDP demanded, as businesses are less willing to invest in new capital goods or expand production. Therefore, the correct choice is (C): a rise in the price level brings a decrease in the real interest rate that decreases investment, bringing a decrease in the quantity of real GDP demanded.

In the Short Run,a Rise in the Price Level Brings