An Indirect Effect of an Increase in the Price Level

question 55

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 the quantity demanded for goods and services.