The Interest Rate Effect Shows That If the Price Level

question 25

Multiple Choice

The interest rate effect shows that if the price level increases

• A) consumers and businesses will increase their spending to buy the same amount of goods as before to make up for the higher interest rates.
• B) consumers and businesses will decrease their spending as the interest rate increases, thereby pushing up the cost of acquiring funds.
• C) U.S. exports and imports will both decrease.
• D) the real value of financial assets will increase.

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Definitions:

Diaphragm

A large, dome-shaped muscle located below the lungs that contracts and relaxes to aid in breathing by changing the volume of the thoracic cavity.

Scalenes

A group of three muscles in the neck that assist in breathing and movement of the cervical spine.

Transverses Thoracis

A thin muscle found within the front wall of the chest, part of the internal thoracic wall muscles, contributing to the movement of the thoracic cage.

Rectus Sheath

The fibrous sheath formed by the aponeuroses of the abdominal muscles, enclosing the rectus abdominis muscles.