An Indirect Effect of an Increase in the Price Level

question 60

Multiple Choice

An indirect effect of an increase in the price level works through

• A) people substituting out of domestic goods and into foreign goods as exchange rates rise.
• B) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate.
• C) interest rates as people save more as the higher prices make their money balances less attractive.
• D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.

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Definitions:

Electrical Impulses

Rapid changes in electric potential that travel along nerves or muscle fibers to transmit signals.

Sensory Neuron

Sensory neurons are nerve cells that transmit sensory information (e.g., touch, pain) from the body to the central nervous system for processing.

Effector

An organ or cell that acts in response to a stimulus, often leading to a physiological response in the body.

Reaction Time

The duration between the presentation of a stimulus and the initiation of the muscular response to that stimulus.