QuestionAugust 11, 2025

Part of the story of the interest rate effect is that a lower price level causes __ in the demand for credit, which then causes the interest rate to __ a. a decrease; fall b. an increase; fall c. an increase; rise d. a decrease; rise

Part of the story of the interest rate effect is that a lower price level causes __ in the demand for credit, which then causes the interest rate to __ a. a decrease; fall b. an increase; fall c. an increase; rise d. a decrease; rise
Part of the story of the interest rate effect is that a lower price level causes __ in the demand for credit, which then causes the interest rate to __ a. a decrease; fall b. an increase; fall c. an increase; rise d. a decrease; rise

Solution
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Answer

a. a decrease; fall Explanation 1. Analyze the relationship between price level and demand for credit A lower price level typically leads to a decrease in the demand for credit because consumers and businesses need less money to purchase goods and services. 2. Determine the effect on interest rates With decreased demand for credit, the supply of available funds increases, leading to a fall in interest rates.

Explanation

1. Analyze the relationship between price level and demand for credit<br /> A lower price level typically leads to a decrease in the demand for credit because consumers and businesses need less money to purchase goods and services.<br /><br />2. Determine the effect on interest rates<br /> With decreased demand for credit, the supply of available funds increases, leading to a fall in interest rates.
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