According to the interest-rate effect,an increase in the price level will
A)increase money demand and interest rates.Investment declines.
B)increase money demand and interest rates.Investment increases.
C)increase money demand,reduce interest rates,and investment increases.
D)decrease money demand and interest rates.Investment declines.

Question

Quizplus · Accepted Answer

According to the interest-rate effect, an increase in the price level will increase money demand since people need more money to buy goods and services at the higher prices. As a result, interest rates increase because borrowers demand more money, and lenders are less willing to lend at lower rates. Higher interest rates lead to a decline in investment since it becomes more expensive for businesses to borrow money to invest in new projects or expand operations.

According to the Interest-Rate Effect,an Increase in the Price Level