In the money market, if the price level rises, then the demand for money ________ and the equilibrium nominal interest rate ________.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
E) increases; does not change

Question

Quizplus · Accepted Answer

When the price level rises, people need more money to carry out transactions, which increases the demand for money. As a result, the equilibrium nominal interest rate rises to balance the increased demand for money with the available supply.

In the Money Market, If the Price Level Rises, Then