Which Statement Describes the Interest-Rate Effect

question 121

Multiple Choice

Which statement describes the interest-rate effect?

• A) A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded.
• B) A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a higher interest rate reduces the quantity of goods and services demanded.
• C) A lower price level leads to lower money demand, lower money demand leads to higher interest rates, and a lower interest rate reduces the quantity of goods and services demanded.
• D) A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded.

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Definitions:

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