An increase in the general price level means goods will now cost more. What effect with this have on money demand and the interest rate? inflation erodes the value of money, money demand falls as does the interest rate money demand rises, driving up interest rates money demand rises driving down interest rates money demand rises, forcing the central bank to increase the money supply,
An increase in the general price level means goods will now cost more. What effect with this have on money demand and the interest rate? inflation erodes the value of money, money demand falls as does the interest rate money demand rises, driving up interest rates money demand rises driving down interest rates money demand rises, forcing the central bank to increase the money supply,
Chapter20: Monetary Policy
Section: Chapter Questions
Problem 6SQ
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An increase in the general price level means goods will now cost more. What effect with this have on money demand and the interest rate?
inflation erodes the value of money, money demand falls as does the interest rate
money demand rises, driving up interest rates
money demand rises driving down interest rates
money demand rises, forcing the central bank to increase the money supply, interest rates thus remain constant.
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