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?

Show Answers

It causes the money demand curve to shift rightward and leads to a higher interest rateNone of the provided options are correctIt shifts the money demand curve to the right but lowers the interest rateIt moves the money demand curve to the left and raises the interest rateIt shifts the money demand curve to the left and reduces the interest rate

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.