Which of the following best describes the "interest rate effect"?
A) An increase in the price level raises the interest rate and chokes off government spending.
B) An increase in the price level lowers the interest rate and chokes off government spending.
C) An increase in the price level raises the interest rate and chokes off investment and consumption spending.
D) An increase in the price level lowers the interest rate and chokes off investment and consumption spending.
Answer: C
You might also like to view...
Saving is S, investment is I, net taxes is NT, government expenditure is G, exports is X, and imports is M. Using these symbols, what is the relationship among the saving, investment, net taxes, government expenditure, exports, and imports?
What will be an ideal response?
An open market purchase of government securities by the Fed would shift the aggregate demand curve leftward
Indicate whether the statement is true or false
Season tickets entail a certain amount of risk due to unpredictable team quality, injuries, weather, and so forth. Who is most likely to purchase season tickets?
A) Sally, who is a rabid fan and is not wealthy B) Jim, who is a rabid fan and is risk neutral C) Roger, who is a rabid fan but is risk averse D) Jenn, who is a fan and is very wealthy
One reason the oversimplified multiplier is incorrect is that inflation
a. increases the multiplier by increasing investment spending. b. increases the multiplier by increasing consumer spending. c. decreases the multiplier by increasing net exports. d. decreases the multiplier by decreasing consumer spending.