When supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis an increase in the price level ?
Correct answer: A. shifts money demand to the right and increases the interest rate
- A. shifts money demand to the right and increases the interest rate
- B. None of these answers
- C. shifts money demand to the right and decreases the interest rate
- D. shifts money demand to the left and increases the interest rate
- E. shifts money demand to the left and decrease the interest rate
Explanation
A higher price level increases the amount of money needed for transactions, shifting money demand rightward. With a fixed money supply, the equilibrium interest rate rises.
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