An increase in the price level causes
A.
a movement up along the money demand curve.
B.
the money demand curve to shift to the right.
C.
the money demand curve to shift to the left.
D.
a movement down along the money demand curve.
Answer
B.
the money demand curve to shift to the right.
This is because the price of money (interest rates) also increases, and causes the demand curve to increase and shift to the right which lead to a change in the equilibrium interest rate.
Explanation
This is because a higher price level will lead to higher demand for money as more money will be required to buy a given set of goods and services which also holds with the vice versa because when the quantity of money demanded increase, the reason why the price of money (interest rates) also increases, and causes the demand curve to increase and shift to the right which lead to a change in the equilibrium interest rate.
