The amount of real money people want to hold will decrease if either _______ or the interest rate _______.
A)the price of bonds increase; rises
B)real GDP decreases; rises
C)real GDP increases; falls
D)the price level increases; rises
E)the price level decreases; falls

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the demand for money is proportional to real GDP. As real GDP decreases, so does the demand for money, meaning people want to hold less of it. Additionally, as interest rates rise, the opportunity cost of holding money increases, leading to a decrease in the demand for money. Therefore, both of these events would lead to a decrease in the amount of real money people want to hold.

The Amount of Real Money People Want to Hold Will