Question

"A higher price level will increase the demand for money, but expectations of a rise in the price level will reduce the demand for money." Is this statement true or false according to the monetary approach? Why?"

Answer 1

Answer:

The statement is True

Explanation:

A higher price level is a term that describes an economic condition in which more money is required to purchase a given amount of goods and services, at a given period, tland this leads to inflation overtime.

However, with a higher expected price level, it implies that a decline in the real value of a constant nominal amount of money balances is expected. Thus, there is an high tendency among people to substitute away from holding money and toward holding non-liquid assets whose prices may rise with the in the foreseeable future.