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Unformatted text preview: Both households and producers create an increased demand for money under conditions of rising price level. Consequently, with constant supply, growing demand for money tends to raise its price in the form of rate of interest . With higher rates of interest, borrowing becomes dearer and the tendency to save rather than consume is induced. Consequently demand for goods and services both from consumers and investors starts declining. Therefore a rising level of prices results in a fall in the aggregate demand due to a rise in the rate of interest....
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10