Final answer:
The correct statement is that a decline in Real GDP will shift the transactions demand curve to the left but leave the total money demand curve unchanged. This reflects the direct relationship between Real GDP levels and the transactions demand for money.
Step-by-step explanation:
The correct statement among the options given is that a decline in Real GDP will shift the transactions demand curve to the left but leave the total money demand curve unchanged. This is because the transactions demand for money is directly related to the level of Real GDP: a higher level of GDP implies more transactions and therefore a higher demand for money for transactions purposes. Conversely, a decrease in Real GDP would lead to fewer transactions and, thus, a lower transactions demand for money.
When reviewing other factors such as the rate of interest, inflation, and changes in price levels, we need to consider the effects on both components of demand for money: transactions demand and asset demand. For instance, a fall in the rate of interest is likely to increase both the asset demand for money, as people prefer to hold liquid assets over bonds or other interest-bearing assets, and the total demand for money. An increase in prices would raise the transactions demand, as more money would be needed for the same transactions if each unit of currency buys less due to inflation. Finally, a decrease in prices would typically decrease both the transactions and total demand for money as the real value of money increases.