When the price level falls, people would want to hold less money, which means that option A will be the right answer.
Price level is a terminology used to describe overall prices of all the goods and services produced in the economy. As price level falls, the ability to buy goods increases as one can buy more goods for lesser amount of money, hence people feel more wealthier and buy more of the goods. This shows that people will spend more money than usual and value of money will rise. A decrease in the price level shifts the aggregate expenditures in an economy will be scheduled upwards and it increases equilibrium GDP. Drop in price level will also decrease the interest rate. Price level is symbolic of deflation.
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Complete Question:
When the price level falls:
A. people want to hold less money.
B. all of the above are correct.
C. the interest rate falls.
D. investment spending rises.
