Which of the following is consistent with an increase in the price level?
A)Dollars become more valuable, and interest rates rise.
B)Dollars become more valuable, and interest rates fall.
C)Dollars become less valuable, and interest rates rise.
D)Dollars become less valuable, and interest rates fall.

Question

Quizplus · Accepted Answer

An increase in the price level means that dollars become less valuable, as more dollars are needed to purchase the same amount of goods and services. This would lead to a rise in interest rates, as lenders demand higher interest rates to compensate for the decreased value of the dollars they will be repaid in.

Which of the Following Is Consistent with an Increase in the Price