According to the intertemporal substitution effect, a fall in the price level will
A) decrease the real value of wealth, which increases the quantity of real GDP demanded.
B) increase the real value of wealth, which raises the interest rate so that the quantity of real GDP demanded decreases.
C) increase net exports, which causes the quantity of real GDP demanded to increase.
D) cause the interest rate to fall so that investment increases and the quantity of real GDP demanded increases.

Question

Quizplus · Accepted Answer

A fall in the price level leads to lower interest rates, encouraging more investment and increasing the quantity of real GDP demanded.

According to the Intertemporal Substitution Effect, a Fall in the Price