When prices increase, individuals tend to hold a larger amount of money in cash and bank deposits. What is this phenomenon known as?

Multiple choice question for Macroeconomic Issues and Analysis. Select an option, then review the explanation below.

Explanation

The real balance effect refers to the tendency of people to increase their holdings of cash and bank balances as the price level rises, reflecting changes in the real value of money.

Practice related questions from the same subject.

1.Which of the following is NOT considered an advantage of the single market?
2.Within the European Exchange Rate Mechanism (ERM), each member country maintained a fixed exchange rate, and together the group ________ in relation to other countries worldwide?
3.In a country with a floating exchange rate system, what is the likely effect on its currency if its inflation rate exceeds that of its trading partners?
4.In a floating exchange rate system, how do expectations of rising interest rates typically affect the currency's exchange rate?
5.How does a fixed exchange rate combined with full capital mobility affect the effectiveness of monetary policy?

When prices increase, individuals tend to hold a larger amount of money in cash and bank deposits. What is this phenomenon known as?

Explanation

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