To stabilize real GDP when the money demand curve shifts up on its own,the Fed must increase the money supply.

Question

Quizplus · Accepted Answer

When the money demand curve shifts up on its own, it means that individuals and businesses are demanding more money for transactions and as a store of value. If the Fed does not increase the money supply, the increased demand for money will result in higher interest rates, which will decrease investment and consumption spending, leading to a decrease in real GDP. To stabilize real GDP, the Fed must increase the money supply to accommodate the increased money demand and keep interest rates at a level that supports investment and consumption spending.

To Stabilize Real GDP When the Money Demand Curve Shifts