When prices increase the interest rate effect
A)will increase and the aggregate demand for goods and services will increase.
B)will increase and the aggregate demand for goods and services will decrease.
C)will decrease and the aggregate demand for goods and services will decrease.
D)will not be affected.

Question

Quizplus · Accepted Answer

When prices increase, people have to spend more money on goods and services, leaving them with less money to save or invest. This results in an increased demand for money, leading to an increase in interest rates. Higher interest rates lead to a decrease in the aggregate demand for goods and services, as borrowing money becomes more expensive, and people are less willing to spend money.

When Prices Increase the Interest Rate Effect