When a Higher Price Level Generates an Increase in the Interest

question 129

Multiple Choice

When a higher price level generates an increase in the interest rate that induces consumers to borrow less and buy less, this chain of events is referred to as

• A) the real-balance effect.
• B) the interest rate effect.
• C) the open economy effect.
• D) the price level effect.

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Definitions:

Loan

Money, property or other material goods given to another party in exchange for future repayment of the loan value or principal amount, along with interest or finance charges.

Chattel Mortgage

A loan arrangement in which an item of movable personal property acts as collateral for the loan.

Conditional Sales Contract

An agreement where the buyer takes possession of an item but its formal title and ownership remain with the seller until all terms of the contract are fulfilled.

Purchase Money Securities Interest

A legal claim that allows lenders to have a security interest in an item that was purchased with the funds they provided.