In the context of the aggregate-demand curve,the interest-rate effect refers to the idea that,when the price level increases,
A)the real value of money decreases;in turn,the real value of the dollar increases in foreign exchange markets,which decreases net exports.
B)the real value of money decreases;in turn,interest rates increase,which decreases net exports.
C)households increase their holdings of money;in turn,interest rates decrease,which reduces spending on investment goods.
D)households increase their holdings of money;in turn,interest rates increase,which reduces spending on investment goods.

Question

Quizplus · Accepted Answer

When the price level increases, households need more money for transactions, leading to increased demand for money. This causes interest rates to rise, which reduces spending on investment goods.

In the Context of the Aggregate-Demand Curve,the Interest-Rate Effect Refers