When the Price Level Falls

question 26

Multiple Choice

When the price level falls

• A)households want to lend more,so the interest rate rises making the quantity of goods and services demanded rise.
• B)households want to lend more,so the interest rate falls,making the quantity of goods and services demanded rise.
• C)households want to lend more,so the interest rate rises,making the quantity of goods and services demanded fall.
• D)None of the above are correct.

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Definitions:

Forward Rate

An agreed-upon interest rate for a financial transaction that will occur in the future, used in forward contracts and rate agreements.

Zero-coupon Bond

A bond that does not pay periodic interest and is sold at a discount from face value; its return comes from the difference between the purchase price and the face value paid at maturity.

Yield

The income return on an investment, such as the interest or dividends received, usually expressed as an annual percentage based on the investment's cost, its current market value, or its face value.

Zero-coupon Bond

A debt security that does not pay interest (coupon) but is traded at a deep discount, providing profit at maturity when the bond is redeemed for its face value.