Holding nominal money balances constant,a decrease in the price level
A)causes the real value of the money balances to increase,in turn increasing the quantity of goods and services demanded.
B)causes the real value of the money balances to decrease,in turn decreasing the quantity of goods and services demanded.
C)causes the real value of the money balances to increase,thereby increasing the interest rate.
D)generates a reduction in the value of the money balances,leading to higher interest rates and a decrease in the quantity of goods and services demanded.

Question

Quizplus · Accepted Answer

Holding nominal money balances constant means that the amount of money held by individuals and institutions remains the same. A decrease in the price level implies that the purchasing power of money has increased. As a result, the real value of money balances increases, and individuals can purchase more goods and services with their money. This increases the quantity of goods and services demanded. Therefore, choice A is the correct answer. Choices B, C, and D are incorrect because they do not correctly explain the relationship between the price level, the real value of money balances, and the quantity of goods and services demanded.

Holding Nominal Money Balances Constant,a Decrease in the Price Level