how-does-price-level-affect-money-demand

price level increase and decrease the money demand

  1. in the commodity market when Price increases the aggregate supply increases as the producers like to sell the maximum goods at the high price. Thus there is an increase in output. As output increases aggregate demand increases.

  2. In the money market as price increases the producer needs to increase employment to increase the supply. So real wage falls.

As increase in output increase the aggregate demand individual would have to provide with higher price to consume the same amount but price and thus there is increase in money demand.

This might lead to increase in money supply and unanticipated money supply increase leads to the case of uncontrolled inflation.

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