The demand for nominal money
A) is the same as the demand for real money.
B) depends on the quantity of money.
C) increases as the price level increases.
D) decreases as the price level increases.

Question

Quizplus · Accepted Answer

The demand for nominal money increases as the price level increases because people need more money to purchase goods and services at higher prices. Conversely, the demand for nominal money decreases as the price level decreases because less money is needed to purchase goods and services at lower prices. The quantity of money, which is controlled by the central bank, affects the overall level of prices but does not directly impact the demand for nominal money. Real money demand, on the other hand, refers to the quantity of money people want to hold relative to their income and is affected by a variety of factors such as interest rates, inflation expectations, and the overall level of economic activity.

The Demand for Nominal Money