An increase in the aggregate price level will cause:
A) a decrease in the interest rate and a rightward shift in the IS curve.
B) a decrease in the interest rate and a downward shift in the LM curve.
C) an increase in the interest rate and a leftward shift in the IS curve.
D) an increase in investment and an increase in output.
E) an increase in the interest rate and an upward shift in the LM curve.

Question

Quizplus · Accepted Answer

An increase in the aggregate price level leads to an increase in the demand for money, which, in turn, increases the interest rate. This is represented by an upward shift in the LM curve in the IS-LM model.

An Increase in the Aggregate Price Level Will Cause