How does the demand for money vary with price level and real GDP?
A) directly with the price level, and directly with the level of real GDP
B) inversely with the price level, and directly with the level of real GDP
C) directly with the price level, and inversely with the level of real GDP
D) inversely with the price level, and directly with the level of real GDP

Question

How does the demand for money vary with price level and real GDP?  
A) directly with the price level, and directly with the level of real GDP 
B) inversely with the price level, and directly with the level of real GDP 
C) directly with the price level, and inversely with the level of real GDP 
D) inversely with the price level, and directly with the level of real GDP

Quizplus · Accepted Answer

The demand for money varies directly with the price level because as prices increase, individuals and businesses need more money to handle transactions. Similarly, it varies directly with the level of real GDP because as the economy grows and produces more goods and services, more money is needed to facilitate this increased number of transactions.

How Does the Demand for Money Vary with Price Level