In some financial panics, an unanticipated drop in the price level led to declining investment because the lower price level
A)resulted in higher nominal interest rates.
B)raised the real value of firms' debt obligations.
C)reduced the real value of consumers' financial wealth.
D)reduced the real value of expected future profits.

Question

Quizplus · Accepted Answer

An unanticipated drop in the price level increases the real value of money, which means that the real value of debt obligations also increases. This can lead to financial distress for firms, making them less likely to invest.

In Some Financial Panics, an Unanticipated Drop in the Price