In the money market, if real GDP increases, then the demand for money_{--------------------} and the equilibrium nominal interest rate_{--------------------} . A)increases; does not change B)decreases; rises C)increases; falls D)increases; rises E)decreases; falls

Question

Quizplus · Accepted Answer

When real GDP increases, people engage in more transactions, which increases the demand for money. As a result, the equilibrium nominal interest rate rises due to the higher demand for money.

In the Money Market, If Real GDP Increases, Then the Demand