Question

When the price level falls? a. The interest rate falls because people will want to hold...

When the price level falls? a. The interest rate falls because people will want to hold more money and so sell bonds. b. Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes. c. Both A and B are correct. d. None of the above are correct.

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Answer #1

Ans: Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes.

Explanation:

When the price level falls :

  • People will want to hold less money, so the interest rate falls. So, option [a] is incorrect.
  • Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes. So, option [b] is correct.

Option [c] and [d] are incorrect.

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