An increase in real GDP affects the demand for money because
A) when real GDP increases, more money is needed to make expenditures.
B) at the higher price level, it takes more dollars to make expenditures.
C) tax payments rise because more income is earned.
D) there is an inverse relationship between the quantity money demanded and nominal GDP.
E) the larger real GDP, the higher the real interest rate.

Question

Quizplus · Accepted Answer

When real GDP increases, households and firms have more money to spend on goods and services, which increases the demand for money. This is because more money is needed to make transactions and expenditures.

An Increase in Real GDP Affects the Demand for Money