When the price level decreases: Group of answer choices The demand for money falls and the interest rate falls Holders of financial assets with fixed money values decrease their spending Holders of financial assets with fixed money values have less purchasing power There is a decrease in consumer spending that is sensitive to changes in interest rates

Question

Kyan Grimes

Business

12 November, 09:19

When the price level decreases: Group of answer choices The demand for money falls and the interest rate falls Holders of financial assets with fixed money values decrease their spending Holders of financial assets with fixed money values have less purchasing power There is a decrease in consumer spending that is sensitive to changes in interest rates

+2

Answers (2)

Know the Answer?

Kenyon Mcguire · Answer 1

The correct answer is letter "A": The demand for money falls and the interest rate falls.

Explanation:

When price level decreases individuals purchasing power increases. This scenario causes people to request fewer credits and loans, which diminishes the demand for money. The interest rate falls then to promote loans and private investment with it. As a result, exchange rates drop boosting international commerce, moreover exports.

Moshe Mullins · Answer 2

The answer is A. demand for money falls and the interest rate falls

Explanation:

The demand for money is the amount of money or amount of wealth households or businesses choose to hold in the form of money (cash or cash-equivalent).

When the price level decreases, the purchasing power of consumers increases, so consumers' demand for money will be reduced or lower. The transactional demand for money will be reduced.

Also when price level decreases, interest rate falls. Because the purchasing power of consumers has been increased, the excess money will be kept in banks and the increases the money supply. So with an increase in money supply, interest rate will be reduced to encourage borrowing.