Empirical evidence indicates that money demand is determined by
A) interest rates and the level of GDP.
B) the inflation rate and the unemployment rate.
C) interest rates and the money supply.
D) the money supply and the level of GDP.

Question

Quizplus · Accepted Answer

Interest rates and the level of GDP are key determinants of money demand. Higher interest rates make holding money less attractive (since holding money yields no interest), thus reducing money demand. Conversely, a higher level of GDP increases transactions, which increases the demand for money for transaction purposes.

Empirical Evidence Indicates That Money Demand Is Determined by