Final answer:
An increase in the price level shifts the money demand curve to the right, causing various changes in the economy.
Explanation:
An increase in the price level causes the money demand curve to shift to the right. When people want to hold more money at each interest rate due to a change in expectations, preferences, or transactions costs, the money demand curve shifts to the right, leading to a higher interest rate.
Higher interest rates resulting from an increase in the price level will lead to a lower quantity of investment, a higher exchange rate, and a decrease in net exports. This causes the aggregate demand curve to shift to the left, resulting in a decrease in real GDP and the price level.
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