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- Macroeconomic Policy Toolseconomics-mcqs › macroeconomic-policy-tools
- Published
- 31 May 2019
- Last updated
- 28 May 2026
In a graph where the interest rate is on the vertical axis and the quantity of money is on the horizontal axis, what effect does a rise in the price level have on the money demand curve?
Multiple choice question for Macroeconomic Policy Tools. Select an option, then review the explanation below.
Explanation
An increase in the price level raises the demand for money since more money is needed for transactions. This shifts the money demand curve to the right, which results in an increase in the interest rate due to higher competition for available funds.
More Macroeconomic Policy Tools MCQs
Practice related questions from the same subject.
- 1.Which of the following functions as an automatic economic stabilizer?
- 2.If the government raises its spending by Rs16 billion and the multiplier effect outweighs the crowding out effect, what will be the impact on the economy?
- 3.Which economic phenomenon is illustrated when higher government spending boosts income, shifts the demand for money to the right, increases interest rates, and consequently reduces investment?
- 4.What is the effect of an increase in the marginal propensity to consume (MPC) on the multiplier?
- 5.What is the immediate effect of a rise in government expenditure on the economy?