When the price level falls, households and firms reduce their holdings of money, leading to a lower interest rate and an increase in borrowing and an increase in RGDP demanded.

Question

Quizplus · Accepted Answer

When the price level falls, the real money supply increases, which reduces the interest rate. This, in turn, makes borrowing cheaper and encourages households and firms to increase their spending, leading to an increase in RGDP demanded.

When the Price Level Falls, Households and Firms Reduce Their