Author Question: The interest rate effect suggests that A) an increase in the price level decreases the interest ... (Read 125 times)

kshipps · **on:** Jun 30, 2018

The interest rate effect suggests that

A) an increase in the price level decreases the interest rate, which causes businesses and consumers to reduce desired spending.
B) an increase in the price level increases the interest rate, which causes businesses and consumers to reduce desired spending.
C) an increase in the price level increases the money supply, which causes businesses and consumers to increase desired spending.
D) a decrease in the price level decreases the interest rate, which causes businesses and consumers to reduce desired spending.

Question 2

According to the permanent income hypothesis, a temporary increase in income that does not affect average lifetime income would

A) cause no change in consumption.
B) cause a decrease in consumption and saving by the same amount.
C) cause an increase in consumption and saving by the same amount.
D) cause a large increase in consumption.