Real money supply in an economy increases due to:

Correct option is A

The correct answer is (a) Fall in prices
Explanation:
· The Real Money Supply is defined as the nominal money supply ($M$) divided by the price level ($P$), represented as $M/P$.
· If the nominal money supply ($M$) remains constant and there is a fall in prices ($P$), the value of $M/P$ increases.
· This means that the same amount of currency can now purchase a larger volume of goods and services, effectively increasing the "real" money available in the economy.
· This is a core concept in the LM curve of the IS-LM model in macroeconomics.
Information Booster:
· A Rise in prices (Inflation) decreases the real money supply, as the purchasing power of money falls.
· Interest rates affect the demand for money, whereas the real supply is fundamentally determined by the nominal supply and the price level.