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Which of the following is incorrect? Multiple Choice As the price level falls, the interest rate declines, and interest-rate-sensitive spending increases. As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. When the price level increases, net exports decrease. When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

Respuesta :

Answer: When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

Explanation:

As the price level falls, the interest rate declines, and interest-rate-sensitive spending increases. It should be noted that a low interest rate will bring about a rise in the demand for investment.

Therefore, when there's a reduction in the price level, there'll be a reduction in interest rate as well which then leads to the rise in demand for investment and rise in aggregate demand.

When the price level increases, there will be a reduction in real balances while the businesses and the households will be poorer when compared to a scenario whereby there's a price fall.

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