-In the figure above,the decrease in the interest rate from i1 to i2 can be explained by
A) a decrease in money growth.
B) a decline in the expected price level.
C) an increase in income.
D) an increase in the expected price level.

Question

-In the figure above,the decrease in the interest rate from i1 to i2 can be explained by
A) a decrease in money growth. 
B) a decline in the expected price level. 
C) an increase in income. 
D) an increase in the expected price level.

Quizplus · Accepted Answer

A decline in the expected price level can lead to a decrease in interest rates as it reduces inflation expectations, leading to lower nominal interest rates.

-In the Figure Above,the Decrease in the Interest Rate from I1