Which of the following shifts the money demand curve to the right?

• A. A decrease in real GDP
• B. An increase in the price level
• C. A decrease in the expected rate of inflation
• D. A decrease in the interest rate

Answer: (B)

Verified step by step guidance

1. Understand that the money demand curve shows the relationship between the quantity of money demanded and the interest rate, holding other factors constant.
2. Recall that money demand depends positively on real GDP and the price level because higher income and prices increase the need for transactions money.
3. Recognize that an increase in the price level means people need more money to carry out the same amount of transactions, which shifts the money demand curve to the right.
4. Note that a decrease in real GDP would reduce money demand, shifting the curve to the left, so it does not cause a rightward shift.
5. Understand that changes in the expected inflation rate and interest rate affect the opportunity cost of holding money but do not directly shift the money demand curve; instead, they cause movements along the curve.