A fall in the price level
A) increases the real value of money balances, which causes borrowing to decrease, leading to a decrease in investment and total planned real expenditures.
B) causes exports to rise and imports to fall, leading to an increase in total planned real expenditures.
C) leads to an increase in total planned real expenditures because of the indirect effect.
D) causes total planned real expenditures to increase as long as the fall is less than the fall in the price level in other countries.

Question

Quizplus · Accepted Answer

A fall in the price level makes domestic goods cheaper relative to foreign goods, increasing exports and decreasing imports, which raises total planned real expenditures.

A Fall in the Price Level