In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?
A)nominal GDP decreases and the interest rate decreases
B)nominal GDP increases and the interest rate decreases
C)nominal GDP decreases and the interest rate increases
D)nominal GDP increases and the interest rate increases

Question

Quizplus · Accepted Answer

When nominal GDP decreases, it is likely that people will have less income and therefore demand less money. Additionally, when the interest rate increases, people may choose to save more and thus demand less money. Therefore, the combination of a decrease in nominal GDP and an increase in the interest rate will lead to a decrease in the quantity of money demanded by the public.

In Which of the Following Instances Can We Be Certain