Question

Which of the following statements is FALSE?A)A rise in the price level lowers real wealth and results in a lower level of consumer spending.B)A rise in the price level increases the demand for money, raises the interest rate, and reduces investment spending.C)A fall in the price level will generally lead to a rise in the level of aggregate output demanded.D)A fall in the price level will reduce the demand for money, raise the interest rate, and increase investment spending.

Answer 1

Statement D is false as a fall in the price level leads to a decreased interest rate, encouraging investment, opposite of what the statement claims.

Step-by-step explanation:

The question provided involves discerning which statement about the effects of price level changes on the economy is false. The correct answer is choice D: 'A fall in the price level will reduce the demand for money, raise the interest rate, and increase investment spending.' This statement is false because a fall in the price level would actually lead to a lower demand for money, which would decrease the interest rate, thereby encouraging more investment spending. The other statements (A, B, and C) are true reflections of economic principles related to the wealth effect and the aggregate demand (AD) curve.