People have increased their expectations of inflation from 3% to 5%,directly causing
A)a relative increase in real money demand,shifting the LM curve up.
B)a relative decrease in real money demand,shifting the LM curve down.
C)a relative increase in real money demand,shifting the LM curve down.
D)a relative decrease in real money demand,shifting the LM curve up.

Question

Quizplus · Accepted Answer

When people expect higher inflation, they tend to reduce their real money demand because the purchasing power of money is expected to decrease. This reduction in real money demand shifts the LM curve down.

People Have Increased Their Expectations of Inflation from 3% to 5%,directly