According to the intertemporal substitution effect, when the price level rises and other things remain the same
A) the interest rate falls.
B) the interest rate rises.
C) the quantity of money increases.
D) government taxes rise.

Question

Quizplus · Accepted Answer

The intertemporal substitution effect suggests that when the price level rises, people will want to save more and consume less today to be able to consume in the future when prices are high. This increases the demand for loanable funds, leading to a rise in the interest rate.

According to the Intertemporal Substitution Effect, When the Price Level