An increase in the price level causes an increase in money demand because
A) people need less money to purchase the same level of goods and services.
B) people have unlimited wants.
C) people need more money to purchase the same level of goods and services.
D) changes in the price level have no effect on money demand.

Question

Quizplus · Accepted Answer

When the price level increases, people need more money to purchase the same level of goods and services as before. This is because their money now has less purchasing power. As a result, they demand more money to be able to afford the same level of consumption.

An Increase in the Price Level Causes an Increase in Money