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,

Survey Of Economics
10th Edition
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter20: Monetary Policy
Section: Chapter Questions
Problem 6SQ
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  1. 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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