According to the interest rate effect, as the price level increases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.
A)increases, decrease, increase, decreases
B)increases, increase, increase, decreases
C)decreases, decrease, decrease, increases
D)increases, increase, decrease, decreases

Question

According to the interest rate effect, as the price level increases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.
A)​increases, decrease, increase, decreases
B)​increases, increase, increase, decreases
C)​decreases, decrease, decrease, increases
D)​increases, increase, decrease, decreases

Quizplus · Accepted Answer

The interest rate effect explains that as the price level increases, households and firms need more money for transactions, which increases demand for money. As a result, interest rates rise, leading to decreased investment and ultimately a decrease in the quantity of real GDP demanded.

According to the Interest Rate Effect, as the Price Level