The Interest Rate Effect That Helps Explain the Slope of the Aggregate

question 202

Multiple Choice

The interest rate effect that helps explain the slope of the aggregate demand curve arises because

• A) interest rates and total planned real expenditures are unrelated.
• B) an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures.
• C) an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures.
• D) a decrease in the price level boosts interest rates, which discourages borrowing and hence frees up income for more planned real expenditures.