"A higher price level will increase the demand for money, but expectations of a rise in...

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"A higher price level will increase the demand for money, but expectations of a rise in...

"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?

with citations and references, please

business economics

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Answer 1

Answer #1

Answer : The answer is "True".

According to the monetary approach, the higher price level requires more money to buy goods and services. As a result, the demand for money increase.

If people expect that the price level will increase then people will hold those assets whose price will rise. As a result, when price level increase then people get more than enough money to cover that inflation. For this reason the demand for money will decrease.

Therefore, the given statement is true.

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Answer 2

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