Ceteris Paribus,if Average Prices in the U

Multiple Choice

Ceteris paribus,if average prices in the U.S.economy fall,then the

A) Real balances effect will lead to a lower quantity of U.S.output demanded.
B) Foreign trade effect will lead to a lower quantity of U.S.output demanded.
C) Interest rate effect will lead to a higher quantity of U.S.output demanded.
D) Cost effect will lead to a higher quantity of U.S.output demandeD.As the price level falls,interest rates fall,so spending on interest-sensitive items such as cars and plasma TVs increases.Even with a constant quantity of nominal money,interest rates fall because a decrease in the price level causes an increase in the supply of real money in a lending institution.