A decrease in real GDP will result in a(n)________ in the demand for money and cause the nominal interest rate to ________.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase

Question

Quizplus · Accepted Answer

A decrease in real GDP usually leads to a decrease in the demand for money because people will have less money to spend, causing the price level to fall. With a decrease in the demand for money, the nominal interest rate will also decrease because lenders will need to lower their rates in order to attract borrowers.

A Decrease in Real GDP Will Result in A(n)________ in the Demand