A reduction in the quantity demanded of interest-rate-sensitive goods as a result of an increase in the price level,if other factors are held constant,is known as
A)the interest rate effect.
B)the real-balance effect.
C)the open-economy effect.an outward shift of the aggregate demand curve.
D)the open-money balance effect.

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 the quantity demanded of interest-rate-sensitive goods, assuming other factors remain constant.

A Reduction in the Quantity Demanded of Interest-Rate-Sensitive Goods as a Result