An increase in real money balances resulting from a lower price level will:
A)reduce both interest rates and investment.
B)reduce interest rates and increase investment.
C)increase interest rates and reduce investment.
D)increase both interest rates and investment.

Question

Quizplus · Accepted Answer

An increase in real money balances due to a lower price level typically leads to lower interest rates because there is more money available relative to the demand for it. Lower interest rates, in turn, make borrowing cheaper, which encourages more investment.

An Increase in Real Money Balances Resulting from a Lower