If the price level doubles, the
A) nominal demand for money doubles.
B) nominal demand for money drops by half.
C) real demand for money drops by half.
D) real demand for money doubles.

Question

Quizplus · Accepted Answer

When the price level doubles, the nominal demand for money also doubles because people will need more money to buy the same amount of goods and services at the higher prices. The real demand for money, which is adjusted for price changes, remains unchanged because the purchasing power required remains the same; it's just expressed in a higher nominal amount due to inflation.

If the Price Level Doubles, the