According to the interest-rate effect,as the price level:
A)rises, people feel poorer and buy less.
B)rises, Australian products become more expensive and foreigners buy fewer Australian goods.
C)rises, interest rates fall and people buy less.
D)rises, interest rates rise and people buy less.
E)falls, interest rates fall and people buy less.

Question

Quizplus · Accepted Answer

According to the interest-rate effect, as the price level rises, interest rates also tend to rise. The increase in interest rates causes a decrease in the level of borrowing and spending, thus resulting in people buying fewer goods and services. Therefore, option D is the best choice.

According to the Interest-Rate Effect,as the Price Level