How are the nominal and real demands for money related to changes in the price level?
What will be an ideal response?
When the price level rises the nominal demand for money increases by the same proportion. For example if the price level rises 5 percent, people demand 5 percent more nominal money so that they can continue to purchase the same quantity of goods and services. The nominal demand is measured in number of dollars. The real demand is the quantity of money measured in constant dollars. This amount does not change when the price level rises. The quantity of real money demanded is independent of the price level.
You might also like to view...
Which of the following pairs of market types are both characterized by having a large number of firms?
A) monopoly and oligopoly B) monopoly and monopolistic competition C) perfect competition and oligopoly D) perfect competition and monopolistic competition
If the median voter voted against a project, we can infer that
A) at least half of the voters also voted against it. B) at most a third of the voters voted against the project. C) the project was approved. D) at least half of the voters voted in favor of the project.
In competitive industries, firms that innovate can expect to make no profit in the short run
Indicate whether the statement is true or false
If the average total cost of supplying a good exceeds the price at which the good can be sold, then entrepreneurs have:
A. an incentive to raise the average total cost of producing the good. B. no incentive to supply the good. C. an incentive to supply only a small amount of the good. D. an incentive to supply the good.