A fall in the price level
A)increases the real value of money balances which causes borrowing to decrease,leading to a decrease in investment and the quantity demanded of aggregate output.
B)causes exports to rise and imports to fall,leading to an increase in quantity demanded of aggregate output.
C)leads to an increase in the quantity of aggregate output because of the indirect effect.
D)causes the quantity demanded of aggregate output to increase as long as the fall is less than the fall in the price level in other countries.

Question

Quizplus · Accepted Answer

A fall in the price level makes domestic goods cheaper relative to foreign goods, leading to an increase in exports and a decrease in imports, which increases the quantity demanded of aggregate output.

A Fall in the Price Level