Final answer:
The price level is closely related to nominal money demand in an economy. Higher price levels lead to a higher nominal money demand because people need more money to purchase goods and services at higher prices.
Step-by-step explanation:
The price level is closely related to nominal money demand in an economy. Nominal money demand refers to the amount of money that individuals and businesses want to hold at a given price level. Higher price levels lead to a higher nominal money demand because people need more money to purchase goods and services at higher prices.
For example, if the price level doubles, people will need twice the amount of money to buy the same quantity of goods and services. This increase in nominal money demand is influenced by factors such as inflation, income levels, and interest rates.
In summary, as the price level increases, the nominal money demand also increases due to the need for more money to purchase goods and services at higher prices.