As the price level rises
A)people are more willing to lend,so interest rates rise.
B)people are more willing to lend,so interest rates fall.
C)people are less willing to lend,so interest rates fall.
D)people are less willing to lend,so interest rates rise.

Question

Quizplus · Accepted Answer

When the price level rises, people become less willing to lend because they anticipate that inflation will reduce the value of the money they receive back. This increased risk of lending results in lenders demanding higher interest rates, hence interest rates rise.

As the Price Level Rises