The real-balance effect refers to
A) the economy's response to interest rate changes.
B) the change in the value of cash balances due to price level changes.
C) the change in net exports.
D) the economy's ability to balance recession and expansion.

Question

Quizplus · Accepted Answer

The real-balance effect refers to the change in the real value of cash balances due to price level changes. When prices increase, the purchasing power of cash balances decreases, and vice versa. This can impact consumer spending behavior and overall economic activity.

The Real-Balance Effect Refers to