What are the effects of a decrease in the price level?
A) Wealth falls, people lend less, interest rates fall, and the dollar appreciates.
B) Wealth falls, people lend less, interest rates rise, and the dollar depreciates.
C) Wealth rises, people lend more, interest rates rise, and the dollar appreciates.
D) Wealth rises, people lend more, interest rates fall, and the dollar depreciates.

Question

Quizplus · Accepted Answer

When the price level decreases, the real value of money increases, making consumers feel wealthier (wealth effect). This leads to increased spending and lending. Lower interest rates result from the increased supply of loanable funds. A lower interest rate reduces the demand for the dollar in foreign exchange markets, leading to its depreciation.

What Are the Effects of a Decrease in the Price