The interest rate effect helps to explain why:
A. an increase in the price level raises investment.
B. a decrease in the price level reduces investment.
C. an increase in the price level reduces the quantity of aggregate demand.
D. a decrease in the price level reduces the quantity of aggregate demand.
Answer: C
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The relationship between the quantity of money balances demanded and the interest rate is
A) contractionary monetary policy. B) determined by open market operations. C) negative. D) the reserve requirements.
The equilibrium point represents the only price-quantity combination in a market that
a. causes both buyers and sellers to agree to a price increase b. causes both buyers and sellers to agree to a price decrease c. exactly matches the independent plans of buyers and sellers d. allows buyers to purchase what they want e. allows sellers to earn a profit