If the price level rises,then
A)the interest rate falls and spending on goods and services falls.
B)the interest rate falls and spending on goods and services rises.
C)the interest rate rises and spending on goods and services falls.
D)the interest rate rises and spending on goods and services rises.

Question

Quizplus · Accepted Answer

When the price level rises, inflation occurs. To combat inflation, central banks often raise interest rates. Higher interest rates make borrowing more expensive, therefore, people and businesses tend to spend less on goods and services. Hence, the interest rate rises and spending on goods and services falls. Therefore, option C is the correct answer.

If the Price Level Rises,then