Which of the following shifts money demand right?
A)an increase in the interest rate or an increase in the price level
B)an increase in the interest rate but not an increase in the price level
C)an increase in the price level but not an increase in the interest rate
D)neither an increase in the interest rate nor an increase in the price level

Question

Quizplus · Accepted Answer

An increase in the price level leads to an increase in money demand because individuals need more money to purchase the same quantity of goods and services. An increase in the interest rate does not necessarily shift money demand right as it depends on the reason for the increase in interest rates (e.g. a contractionary monetary policy). Therefore, only option C, an increase in the price level but not an increase in the interest rate, is the correct answer.

Which of the Following Shifts Money Demand Right