Real-Balances Effect
-When the price level is high households and businesses cannot afford to purchase as much output
-When the price level is low households and businesses can afford to purchase more output
Interest Rate effect
-A higher price level increases the interest rate which tends to discourage investment
-A lower price level decreases the interest rate which tends to encourage investment
Net Export effect
-A higher price level increases the demand for relatively cheaper imports
-A lower price level increases the foreign demand for relatively cheaper U.S exports