In the monetary small open-economy model with a fixed exchange rate,an increase in the domestic price level has which impact on domestic money demand?
A) It increases it.
B) It decreases it.
C) It has no impact.
D) It depends.

Question

Quizplus · Accepted Answer

In the monetary small open-economy model with a fixed exchange rate, an increase in the domestic price level implies higher demand for money to purchase goods and services. This is because an increase in the price level requires individuals and firms to spend more money to buy the same amount of goods and services, resulting in a greater demand for money to facilitate these transactions. Therefore, an increase in the domestic price level generally increases domestic money demand.

In the Monetary Small Open-Economy Model with a Fixed Exchange