Ceteris paribus,if average prices in the U.S.economy fall,then the
A)Real balances effect will lead to a lower quantity of U.S.output demanded.
B)Foreign trade effect will lead to a lower quantity of U.S.output demanded.
C)Interest rate effect will lead to a higher quantity of U.S.output demanded.
D)Cost effect will lead to a higher quantity of U.S. output demanded.

Question

Quizplus · Accepted Answer

When average prices fall, the interest rate effect suggests that lower prices reduce interest rates, which encourages more borrowing and spending, leading to a higher quantity of output demanded.

Ceteris Paribus,if Average Prices in the U