Which of the following properly describes the interest rate effect?
A)As the money supply increases, the interest rate falls, so spending rises.
B)As the money supply increases, the interest rate rises, so spending falls.
C)As the price level increases, the interest rate falls, so spending rises.
D)As the price level increases, the interest rate rises, so spending falls.

Question

Quizplus · Accepted Answer

The interest rate effect describes how an increase in the price level leads to higher interest rates, which in turn reduces spending, particularly investment and consumption.

Which of the Following Properly Describes the Interest Rate Effect