As the price level increases,what is the impact on money demand (money supply unchanged)and the quantity RGDP demanded?
A)Money demand decreases and the quantity of RGDP demanded increases.
B)Money demand and the quantity of RGDP demanded both increase.
C)Money demand and the quantity of RGDP demanded both decrease.
D)Money demand increases and the quantity of RGDP demanded decreases.

Question

Quizplus · Accepted Answer

When the price level increases, the purchasing power of money decreases, leading to a decrease in the real value of wealth. As a result, people will demand more money to maintain the same level of real purchasing power, which results in an increase in money demand. However, the increase in price level will lead to a decrease in the quantity of RGDP demanded due to the decrease in real wealth and real income. Hence, the correct option is D, which states that money demand increases and the quantity of RGDP demanded decreases.

As the Price Level Increases,what Is the Impact on Money