If the price level falls, the
A) demand for money increases.
B) demand for money decreases.
C) quantity of money demanded increases.
D) quantity of money demanded decreases.
E) demand for money does not change and the quantity of money demanded does not change.

Question

Quizplus · Accepted Answer

When the price level falls, the purchasing power of money increases, which means that each unit of money can buy more goods and services. This reduces the demand for money as people need less money to buy the same amount of goods and services. Therefore, the answer is B as the demand for money decreases.

If the Price Level Falls, the