When the price level falls
A)The interest rate falls because people will want to hold more money and so sell bonds.
B)Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes.
C)Both A and B are correct.
D)None of the above are correct.

Question

Quizplus · Accepted Answer

When the price level falls, the interest rate typically falls because people want to hold less money and buy more bonds, not sell them. This lower interest rate encourages firms to invest in new business buildings and equipment, and households to build new homes.

When the Price Level Falls