An indirect effect of a decrease in the price level works through
A)people substituting out of domestic goods and into foreign goods as exchange rates rise.
B)changes in trade balances as domestic goods become more expensive,causing interest rates to move in the opposite direction from the change in the exchange rate.
C)interest rates as people save more as the higher prices make their money balances less attractive.
D)interest rates,increasing the quantity demanded for goods and services.

Question

Quizplus · Accepted Answer

A decrease in the price level can lead to lower interest rates, which in turn increases the quantity demanded for goods and services. This is because lower prices increase the real value of money, leading to increased spending and investment as borrowing costs are reduced.

An Indirect Effect of a Decrease in the Price Level