As the general price level in the country of Norweinshire rose, the average interest rate in the economy increased, thereby lowering aggregate expenditure. This relationship between price level, interest rate, and aggregate expenditure is referred to as the:A) total price effect. B) interest rate effect. C) wealth effect. D) real-balance effect. E) income effect.

Question

Business

Gay

21 June, 15:32

As the general price level in the country of Norweinshire rose, the average interest rate in the economy increased, thereby lowering aggregate expenditure. This relationship between price level, interest rate, and aggregate expenditure is referred to as the:A) total price effect. B) interest rate effect. C) wealth effect. D) real-balance effect. E) income effect.

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Answers (1)

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Sammy Webster · Answer 1

B. interest rate effect

Explanation:

Interest rate effect -

It refers to the process of increase in the cost of the borrowing on the cost of production because of inflation of price in the economy, is referred to as interest rate effect.

The interest rate effect indicates that most of the business finance managers and the consumers would be reducing the process of borrowing as the interest rate would increase.

Hence, from the given scenario of the question,

The correct answer is B. interest rate effect.