As the price level increases, households and firms holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.
A)increases, decrease, increase, decreases
B)increases, increase, increase, decreases
C)decreases, decrease, decrease, increases
D)decreases, decrease, increase, increases
E)increases, increase, decrease, decreases

Question

Quizplus · Accepted Answer

As the price level increases, households and firms need more money for transactions, leading to increased demand for money. This causes interest rates to rise, which discourages investment spending. Consequently, the quantity of real GDP demanded decreases.

As the Price Level Increases, Households and Firms Holdings of Money