When real GDP increases, the demand for money ________ and, as a result, the equilibrium nominal interest rate ________.
A) rises; decreases
B) rises; increases
C) falls; decreases
D) falls; increases
E) rises; probably changes but more information is needed to determine if it rises or falls

Question

Quizplus · Accepted Answer

When real GDP increases, the demand for money rises because people and firms want to spend more on goods and services, which requires cash or borrowing. As a result, the equilibrium nominal interest rate increases as lenders charge more to loan out money due to higher demand.

When Real GDP Increases, the Demand for Money ________ And