The interest rate effect that helps explain the slope of the aggregate demand curve arises because
A) an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures.
B) interest rates and total planned real expenditures are unrelated.
C) an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures.
D) a decrease in the price level boosts interest rates, which discourages borrowing and hence frees up income for more planned real expenditures.
C
You might also like to view...
Which of the following cannot be determined on the basis of the above regression results?
A) the degree of price elasticity of good B B) whether or not good A is "normal" C) the degree of competition between A and B D) All of the above can be determined.
The lack of an entrepreneurial class in developing nations tends to:
A. Keep workers from migrating to cities from rural areas B. Reduce the level of capital investment C. Force the need for land reform D. Keep governments stable