When the price level rises and increases the demand for money,the nominal interest rate ________ and the real interest rate ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls
E)does not change;does not change

Question

Quizplus · Accepted Answer

When the price level rises, people need more money for transactions, increasing the demand for money. This leads to a rise in the nominal interest rate. Since the real interest rate is the nominal interest rate adjusted for inflation, it also rises if the nominal rate increases and inflation expectations remain constant.

When the Price Level Rises and Increases the Demand for Money,the