By analyzing aggregate demand through its component parts,we can conclude that,everything else held constant,a decline in the price level causes
A)a decline in the real money supply,an increase in interest rates,a decline in investment spending,and a decline in aggregate output demand.
B)a decline in the real money supply,a decline in interest rates,an increase in investment spending,and an increase in aggregate output demand.
C)an increase in the real money supply,a decline in interest rates,an increase in investment spending,and an increase in aggregate output demand.
D)an increase in the real money supply,an increase in interest rates,a decline in investment spending,and a decline in aggregate output demand.

Question

Quizplus · Accepted Answer

A decline in the price level increases the real value of money supply. This leads to a decrease in interest rates, as individuals and firms demand less interest to lend their excess money supply. The lower interest rates encourage more investment spending, which increases aggregate output demand. Therefore, choice C accurately describes the effects of a decline in the price level on aggregate demand through its component parts.

By Analyzing Aggregate Demand Through Its Component Parts,we Can Conclude