Which of the Following Correctly Describes the Interest-Rate Effect

question 8

Multiple Choice

Which of the following correctly describes the interest-rate effect?

• A) If the price level decreases, consumer purchasing power decreases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls.
• B) If the price level decreases, consumer purchasing power increases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls.
• C) If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls.
• D) If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates fall, debt-financed borrowing increases, and real GDP demanded increases.

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Definitions:

High-Low Method

A technique used in cost accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.

Fixed Cost

Costs that remain unchanged regardless of the level of production or business activity within a certain range.

High-Low Method

A technique used in cost accounting to estimate variable and fixed costs based on the highest and lowest levels of activity.

Break-Even Point

The point at which total costs equal total revenues, indicating that a business is neither making a profit nor incurring a loss.