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

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