The decline in the price level following the 1929 stock market crash may have reduced household spending on durable goods and houses because the decline
A)resulted in higher nominal interest rates.
B)led the government to increase its spending, which crowded out spending by households.
C)increased the real value of outstanding household debt.
D)led to an offsetting decline in nominal wages.

Question

Quizplus · Accepted Answer

A decline in the price level increases the real value of outstanding household debt, making it harder for households to afford new purchases such as durable goods and houses.

The Decline in the Price Level Following the 1929 Stock