An increase in the price level, given the nominal money stock:
A) leads to a reduction in investment spending.
B) increases the stock of real balances.
C) generates an overall increase in aggregate demand.
D) leads to an increase in investment spending.

Question

Quizplus · Accepted Answer

An increase in the price level, given the nominal money stock, reduces the purchasing power of money, leading to higher interest rates as people demand more money. Higher interest rates, in turn, reduce investment spending because borrowing costs are higher.

An Increase in the Price Level, Given the Nominal Money