The Interest Rate Effect of a Change in the Aggregate

question 204

Multiple Choice

The interest rate effect of a change in the aggregate price level occurs when:

• A) a higher price level decreases the purchasing power of money, resulting in an increase in the interest rate.
• B) the Fed uses contractionary monetary policy, causing an increase in the interest rate.
• C) government borrowing in the loanable funds market raises the interest rate.
• D) the price of a bond increases, reducing the interest rate.

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Definitions:

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the financial gain in excess of the opportunity costs.

Production Costs

Expenses incurred in the process of creating or manufacturing a product, including materials, labor, and overhead costs.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service.

Alternative Goods

Products that serve as substitutes for each other; when the price of one increases, the demand for the other may increase.