Why does a decrease in the price level induce an increase in the aggregate quantity of goods and services demanded?
A) because as wealth falls, interest rates rise, and the dollar appreciates
B) because as wealth falls, interest rates rise, and the dollar depreciates
C) because as wealth rises, interest rates rise, and the dollar appreciates
D) because as wealth rises, interest rates fall, and the dollar depreciates

Question

Quizplus · Accepted Answer

A decrease in the price level increases the real value of money, which can be considered an increase in wealth. This leads to lower interest rates as people are more willing to save, and a lower interest rate stimulates investment and spending. Additionally, a depreciating dollar makes domestic goods cheaper for foreigners, increasing exports.

Why Does a Decrease in the Price Level Induce an Increase