State whether you agree or disagree with the following statement Explain what ha

Question

State whether you agree or disagree with the following statement Explain what happens to (ii) interest rates and (iii) MD Inflation, a rise in the price level, causes the demand for money to decline. Because inflation causes money to be worth less households desire to hold less of it. TO ANSWER QUESTIONS CHOOSE ONLY THREE ANSWERS FROM THE LIST BELOW Select one or more: (i) Agree (i) Disagree (ii) interest rate increases (ii) interest rate decreases (ii) interest rate unchanged (iii) MD increases (iii) MD decreases (iii) MD unchanged

Explanation / Answer

Disagree

A rise in the price level will reduce the supply of money. This will increase the interest rate. Because of this the money demand is reduced and hence there is less money demand inflation.

Interest rate increases. MD decreases.

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