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:

S&P Category

A classification system used by Standard & Poor's to categorize and evaluate stocks or other securities based on their sector or characteristics.

CCC/C

A credit rating symbol used by rating agencies to denote a high risk of default; regarding bonds or loans, it signifies very poor credit quality.

Default Rate

The percentage of borrowers who fail to make payments on their debts or loans as agreed, leading to a default status.

Moody's "Aaa"

The highest credit rating given by Moody's Investors Service, denoting the lowest risk of default for bonds and other fixed-income securities.