What are the effects of a decrease in the price level?
A) People hold less money, so they lend less, and the interest rate rises.
B) People hold less money, so they lend more, and the interest rate falls.
C) People hold more money, so they lend more, and the interest rate rises.
D) People hold more money, so they lend less, and the interest rate falls.

Question

Quizplus · Accepted Answer

When the price level decreases, people need less money for transactions, which increases the supply of loanable funds. This leads to more lending at a lower interest rate.

What Are the Effects of a Decrease in the Price