The Interest Rate Effect Predicts That Higher Prices

question 110

Multiple Choice

The interest rate effect predicts that higher prices:

• A) make it more expensive to borrow, leading to higher interest rates and less investment.
• B) make people worse off by reducing the value of their wealth, leading them to save more and spend less.
• C) decrease borrowing, leading to higher interest rates and less investment.
• D) decrease borrowing, leading to lower interest rates and more investment.
• E) increase borrowing, leading to higher interest rates and less investment.

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