A fall in the price level changes the purchasing power of money.This is relevant to the __________ effect.
A) international trade
B) real balance
C) aggregate demand
D) interest rate
E) aggregate supply

Question

Quizplus · Accepted Answer

The real balance effect refers to the relationship between the price level and the purchasing power of money. A fall in the price level increases the purchasing power of money, which leads to an increase in consumer spending due to their increased ability to buy goods and services with their available funds. Therefore, B is the correct answer.

A Fall in the Price Level Changes the Purchasing Power