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

Question

Quizplus · Accepted Answer

When the price level rises, the demand for money increases, as people require more money to purchase the same quantity of goods and services. This results in an increase in interest rates, as individuals and firms borrow more money to maintain their spending levels. Higher interest rates decrease investment because it becomes more expensive for firms to borrow, and this reduces their profitability. Therefore, option B is the correct choice.

Other Things the Same,when the Price Level Rises,interest Rates