During an economic expansion when real GDP increases, the
A) demand for money increases.
B) demand for money decreases.
C) supply of money decreases.
D) nominal interest rate is constant.
E) real interest rate is constant.

Question

Quizplus · Accepted Answer

As real GDP increases, individuals and firms are engaging in more transactions, which requires an increase in the demand for money to facilitate those transactions. This increase in demand usually leads to an increase in nominal interest rates.

During an Economic Expansion When Real GDP Increases, the