The real-balances effect on aggregate demand suggests that a
A)lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending.
B)lower price level will decrease the real value of many financial assets and therefore cause an increase in spending.
C)lower price level will increase the real value of many financial assets and therefore cause an increase in spending.
D)higher price level will increase the real value of many financial assets and therefore cause an increase in spending.

Question

Quizplus · Accepted Answer

The real-balances effect states that a lower price level increases the real value of money and financial assets, leading to higher consumer wealth and increased spending.

The Real-Balances Effect on Aggregate Demand Suggests That a