When the purchasing power of money declines:

Question

Quizplus · Accepted Answer

When the purchasing power of money declines, people feel the need to hold more money to afford the same goods and services as before. This leads to an increase in demand for money. As a result, interest rates rise because lenders will charge more to lend out money when demand is high. The other options are incorrect because a decline in the purchasing power of money would not lead to an increase in the supply of bonds or a decrease in demand for money.

When the Purchasing Power of Money Declines