Answer
D. Decreases in the price level give rise to real-balances effects, interest-rate effects, and foreign purchases effects that increase the amount of real GDP demanded.
Work Step by Step
The real-balances effect indicates that inflation reduces the real value or purchasing power of fixed-value financial assets held by households, causing cutbacks in consumer spending. The interest-rate effect means that, with a specific supply of money, a higher price level increases the demand for money, therefore raising the interest rate and reducing investment purchases. The foreign purchases effect suggests that an increase in one country's price level relative to the price levels in other countries reduces the net export component of that nation's aggregate demand. All of these things result in a downsloping demand curve.
