Draw the graph · Macro · Money market
The price level rises
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Money demand shifts right. Money supply stays put.
Money demand is about the dollars people need for their transactions. When prices rise, the same purchases require more dollars, so people want to hold more money at every interest rate. Money demand shifts right. The money supply is fixed, so the interest rate rises.
The nominal interest rate rises.
Common mistake. Some students shift money supply right because 'more dollars are changing hands.' The stock of money is set by the central bank and did not change. What changed is how much of it people want to hold.
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Lesson: The Money Market