In the land of Oz the monetary unit is the emerald. Households and firms in Oz currently hold 100,000 emeralds. The price level is 100. If the price level jumps to 110 and other things remain the same, households and firms will _ .

Question

Quizplus · Accepted Answer

When the price level increases from 100 to 110, the real value of money holdings decreases. To maintain the same purchasing power, households and firms will need to increase the nominal amount of money they hold by 10% of 100,000 emeralds, which is 10,000 emeralds.

In the Land of Oz the Monetary Unit Is the Emerald