When price levels rise, the quantity of nominal money demanded will ________ and the quantity of real money demanded will ________.
A) increase; stay the same
B) increase; increase
C) increase; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

When price levels rise, people need more nominal money to conduct transactions, so the nominal money demanded increases. However, the real money demanded, which is adjusted for price levels, stays the same because it reflects the purchasing power needed, not the nominal amount.

When Price Levels Rise, the Quantity of Nominal Money Demanded