Ceteris paribus,if the average price level falls,then the _____ effect will result in _____ in the purchases of goods and services.
A) Real balances;an increase
B) Foreign trade;a decrease
C) Interest rate;a decrease
D) Cost;an increase

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if the average price level falls, the real value of individuals' monetary assets (i.e., the real balances effect) increases, which leads to an increase in their ability to purchase goods and services. Therefore, a decrease in the average price level results in an increase in the purchases of goods and services.

Ceteris Paribus,if the Average Price Level Falls,then the _____ Effect