Explain how a rise in the price level affects aggregate quantity demanded with the:
Money wealth effect.

a) The wealth of foreigners falls, reducing how much they import, thus reducing domestic demand.
b)The interest rate paid on money falls, reducing the amount of money people hold, which then reduces spending.
c) People put more money in the bank because nominal interest rates have risen. This reduces spending.
d) The money people hold in cash is worth less, which decreases spending.

Option "A" is correct.

Explanation:

The fall in wealth rate reduces demand.

d) The money people hold in cash is worth less, which decreases spending.

Explanation:

When there is a rise in price level the value of cash people are holding reduces, this reduces the purchases of goods and services because the purchasing power of money has reduces, making buyers to buy less. To keep the value constant, people withdraw more from their banks, this reduces the amount banks have to lend, leading to higher interest rates and lower investment expenditures.

On the other hand, as the price level falls, the purchasing power of money rises, and the money in the bank account have more value and in turn making account holders to become wealthier, this makes buyers to be willing to buy more.

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