The question
Name: ______________________ Date: ____________ A rise in the price level: money demand, the nominal interest rate and bond prices (5 points)
The price level in the invented country of Wren rises, and its central bank keeps the money supply unchanged.
(A) Draw a correctly labeled graph of the money market and show the effect of the rise in the price level on the nominal interest rate. [3 points]
(B) Explain why money demand changes when the price level rises. [1 point]
(C) Based on your answer to part A, explain what happens to the prices of existing bonds in Wren. [1 point]