Question

As the price level falls, the cost of borrowing money will______causing the quantity of output demanded_______. This phenomenon is known as the ____________ effect

Answer 1

Answer:

The correct answers that fills the gaps are: fall, rise, interest rate effect

Explanation:

When the interest rate rises, the cost of loans necessarily increases, which hinders the ability of the business sector to finance investments and affects the consumption capacity of families. This in turn can have an impact on the level of unemployment, due to the same difficulty of companies to finance their growth and development due to the increase in credit which decreases consumption, and if consumption decreases, employment also tends to do so. how much the productive sector must reduce the supply, and to reduce the supply the production must be reduced.

Otherwise, when interest rates decrease, the cost of loans decreases, therefore financing investments is attractive, contributing to the increase in production and employment.