The interest rate effect refers to how higher price levels lead to higher interest rates, which reduce investment and consumer spending, thereby decreasing overall economic output.

The interest rate effect suggests that as price levels rise, interest rates increase, leading to decreased borrowing and spending, which reduces aggregate demand.

An adverse aggregate supply shock could result from: A rapid rise in oil prices.

The natural rate of unemployment is the level of unemployment that exists when the economy is at full employment, including frictional and structural unemployment but not cyclical unemployment.