In which case would the quantity of money demanded by the public tend to increase by the greatest amount?
A) The interest rate increases and nominal GDP increases.
B) The interest rate increases and nominal GDP decreases.
C) The interest rate decreases and nominal GDP decreases.
D) The interest rate decreases and nominal GDP increases.

Question

Quizplus · Accepted Answer

The quantity of money demanded by the public tends to increase when nominal GDP increases, as more money is needed to facilitate transactions of goods and services. Additionally, when the interest rate decreases, people are more willing to borrow and spend money, further increasing the demand for money. Therefore, the combination of a decrease in interest rates and an increase in nominal GDP would lead to the greatest increase in the quantity of money demanded by the public.

In Which Case Would the Quantity of Money Demanded by the Public