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:

City-State

An independent, self-governing city.

Sumerians

An ancient civilization that developed in Mesopotamia (modern-day Iraq) around 4500 BCE, known for creating one of the world's first writing systems, cuneiform.

Raze Persepolis

Refers to the destruction of the ancient city of Persepolis, an important ceremonial capital of the Achaemenid Empire, traditionally attributed to Alexander the Great's army in 330 BCE.

Sasanian Dynasty

An Iranian dynasty that ruled from 224 to 651 AD, known for its significant cultural, architectural, and artistic achievements.