According to the Intertemporal Substitution Effect, a Fall in the Price

question 135

Multiple Choice

According to the intertemporal substitution effect, a fall in the price level will

• A) increase the real value of wealth, which causes interest rates to increase. As a result, the quantity of real GDP demanded decreases.
• B) decrease the real value of wealth, which causes the quantity of real GDP demanded to increase.
• C) cause the interest rate to fall. As a result, investment increases and the quantity of real GDP demanded increases.
• D) lead to an increase in net exports, which causes the quantity of real GDP demanded to increase.

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