When the Supply of Credit Is Fixed, an Increase in the Price

question 80

Multiple Choice

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which in turn reduces consumption and investment spending. This argument is called the:

• A) real balances effect.
• B) interest-rate effect.
• C) net exports effect.
• D) substitution effect.

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Definitions:

Invitation to Negotiate

A pre-contractual communication inviting parties to discuss terms before entering into a formal agreement.

Option Contract

A contract that gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific time frame.

Standard Sales Contract

An agreement that outlines the terms and conditions of a sale, typically using established clauses to facilitate common transactions.

Adhesion Contract

A standard-form contract prepared by one party, usually favoring that party, to which the other party has little negotiation power and often must accept as is.