How are the nominal and real demands for money related to changes ...

[Haya94]

How are the nominal and real demands for money related to changes in the price level?
 
  What will be an ideal response?

Question 2

In the political market place, typical voters
 
  A) support policies that they think will make the poor better off.
  B) fire bureaucrats who support efficient policies.
  C) are fully informed.
  D) are sometimes rationally ignorant about a policy.

[pikon]

Answer to Question 1

When the price level rises the nominal demand for money increases by the same proportion. For example if the price level rises 5 percent, people demand 5 percent more nominal money so that they can continue to purchase the same quantity of goods and services. The nominal demand is measured in number of dollars. The real demand is the quantity of money measured in constant dollars. This amount does not change when the price level rises. The quantity of real money demanded is independent of the price level.

Answer to Question 2

D

[Haya94]

TYSM

Gracias!