Question

Which one of the following about The interest-rate effect is correct? A. The interest-rate effect suggests that a decrease in the supply of money will increase, interest rates and reduce interest-sensitive consumption and investment spending. B. The interest-rate effect suggests that an increase in the price level will increase the demand for money,reduce interest rates, and decrease consumption and investment spending. C. The interest-rate effect suggests that an increase in the price level will increase the demand for money,increase interest rates, and decrease consumption and investment spending. D. The interest- rate effect suggest that an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending

Answer 1

C.

When the price level increases, people will need more money and thus the demand for money will increase, pushing up interest rates.