Practice mode Macroeconomic Policy Tools

On a money market graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, what does a rise in the price level do?

Correct answer B. Shifts money demand to the right and increases the interest rate

Explanation

Higher prices mean people need more money for the same transactions, so money demand rises. With a fixed money supply, the interest rate must rise to restore equilibrium.

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On a money market graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, what does a rise in the price level do?

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On a money market graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, what does a rise in the price level do?

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