When the money market is drawn with the value of money on the vertical axis,as the price level increases which of the following increases?
A)the quantity of money demanded and the quantity of money supplied
B)the quantity of money demanded but not the quantity of money supplied
C)the quantity of money supplied but not the quantity of money demanded
D)neither the quantity of money supplied nor the quantity of money demanded

Question

Quizplus · Accepted Answer

As the price level increases, the demand for money also increases because people need more money to buy the same amount of goods and services. Therefore, the quantity of money demanded would increase. However, the supply of money is determined by the central bank and does not change with changes in the price level. Therefore, the quantity of money supplied remains constant.

When the Money Market Is Drawn with the Value of Money