There is a sound that is generated, and it sounds to the ear like a falling note. But a perpetual falling note.
so does it mean that if I hear, say, E and G (which is a minor interval), my ear will generate the C note, and I'm more likely to hear C major chord than E minor?
Every major key has a relative minor that shares all the same notes, so it isn't as big a deal as you'd think. The E-G interval and the C-E-G triad both fit the key of A minor as well as C major.
The most obvious case of intermodulation is when you hear beat frequencies between two tones close together in frequency, like when tuning your guitar. Even if the two tones were perfect sine waves and the amplifier and speaker were linear, your ears would still generate the beat tone.
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