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:

Cognitive Conflict

A psychological state resulting from the confrontation of contradictory information, beliefs, or perceptions, which can lead to cognitive dissonance and the motivation to change one's thoughts or behaviors.

Assimilation

The cognitive process of fitting new information into existing cognitive schemas, perceptions, and understanding.

Accommodation

In cognitive psychology, the process of altering one's existing schemas, or ways of thinking, as a result of new information or experiences.

Equilibration

The process by which individuals balance assimilation and accommodation to create stable understanding in cognitive development.