When Prices Rise, Consumers and Businesses Hold Larger Money Balances

question 105

Multiple Choice

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the

• A) interest rate effect.
• B) real balance effect.
• C) investment effect.
• D) disinvestment effect.

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Definitions:

Acronym

An abbreviation formed from the initial letters of other words and pronounced as a word.

First Letters

Refers to the initial characters in a sequence of words or a piece of text, often considered in psychological tests or literature analysis.

Nonsense Syllable

A string of letters that does not form a meaningful word, often used in memory and learning experiments.

Working Memory

The segment of short-term memory tasked with the immediate conscious processing of perceptions and language.