Question

An increase in the price level causes A. the money demand curve to shift to the...

An increase in the price level causes
A.
the money demand curve to shift to the right.
B.
the money demand curve to shift to the left.
C.
a movement up along the money demand curve.
D.
a movement down along the money demand curve.
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Answer #1


When the price level increases then the value of money declines.

This decline in the value of money reduces the purchasing power of households. Due to decline in purchasing power, households demand more money to maintain the same standard of living.

Thus, demand for money increases as the price level increases.

Increase in demand for money implies the shift of the money demand curve to the right.

It is the change in the interest rate that leads to movement along the money demand curve.

Hence, the correct answer is the option (A).

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