Other things constant, an increase in the general price level with no increase in the nominal money supply will:
A) increase the demand for money balances and increase aggregate expenditure.
B) decrease the demand for money and increase aggregate expenditure.
C) increase the demand for money and decrease aggregate expenditure.
D) decrease the demand for money and decrease aggregate expenditure.

Question

Quizplus · Accepted Answer

An increase in the general price level with no increase in the nominal money supply increases the demand for money balances because people need more money to buy the same amount of goods and services. This, in turn, decreases aggregate expenditure because individuals and businesses are likely to spend less on goods and services as they hold more money to finance their transactions.

Other Things Constant, an Increase in the General Price Level