Other things the same,when the price level rises,
A)interest rates rise, so firms increase investment.
B)interest rates rise, so firms decrease investment.
C)interest rates fall, so firms increase investment.
D)interest rates fall, so firms decrease investment.

Question

Quizplus · Accepted Answer

When the price level rises, it will lead to a decrease in the purchasing power of consumers, which reduces their demand for goods and services. This decrease in demand will lead to a decrease in the demand for borrowing, causing interest rates to increase. This increase in interest rates will make it more expensive for firms to borrow, leading to a decrease in investment. Therefore, the correct answer is B, interest rates rise, so firms decrease investment.

Other Things the Same,when the Price Level Rises