When the Price Level Falls, Households and Firms Reduce Their

question 138

True/False

When the price level falls, households and firms reduce their holdings of money, and shift their money into interest earning assets, which will increase the supply of loanable funds, leading to a lower interest rate and an increase in borrowing and an increase in RGDP demanded.

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Definitions:

Sole Proprietorship

An unincorporated business firm owned by one person.

Liability

Liability refers to legal financial debts or obligations that arise during the course of business operations, which an entity is responsible for settling.

Capital

Wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.

Investment

Assigning monetary resources with the goal of achieving income or gains.