In the dynamic model of money, an increase in the price level causes an increase in money demand, thus leading to a higher nominal interest rate.This effect is referred to as the
A)price-level effect.
B)income effect.
C)liquidity effect.
D)inflationary effect.

Question

Quizplus · Accepted Answer

The price-level effect describes how an increase in the price level leads to an increase in money demand, which in turn causes an increase in the nominal interest rate. This is because as prices rise, individuals and businesses need more money to carry out transactions, leading to higher demand for money.

In the Dynamic Model of Money, an Increase in the Price