A decrease in the aggregate price level, P, will most likely have which of the following effects?

Question

Quizplus · Accepted Answer

A decrease in the aggregate price level, P, will lead to a decrease in the nominal interest rate, which will increase the real money supply and shift the LM curve downward. This is because, with lower prices, people need less money to buy goods and services, so they can hold onto more money at lower interest rates. There is no reason to expect a shift in the IS curve.

A Decrease in the Aggregate Price Level, P, Will Most