Members of a free trade area not only remove barriers among themselves but also engage in free trade with non-member countries.

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

A) Price level increases in the United States relative to other countries raise net exports, which lowers aggregate expenditure. B) As the price level rises, government spending falls, which lowers aggregate expenditure. C) Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure. D) Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline.

An increase in the market interest rate, other things equal, will _____

a. have no effect on investment b. increase the amount invested since the rate of return will be lower c. increase the amount invested because income will increase d. reduce the amount invested because the opportunity costs of investing will be higher e. increase the amount invested because the rate of return will be higher