An increase in real GDP can shift
A)money demand to the right and decrease the equilibrium interest rate.
B)money demand to the right and increase the equilibrium interest rate.
C)money demand to the left and decrease the equilibrium interest rate.
D)money demand to the left and increase the equilibrium interest rate.
E)money demand to the right and leave the equilibrium interest rate unchanged.

Question

Quizplus · Accepted Answer

When real GDP increases, people experience an increase in income and their demand for money increases. This leads to a shift in the money demand to the right. As the money demand increases, the equilibrium interest rate also increases as the price of money (interest rate) adjusts to balance the demand and supply of money. Therefore, choice B is the correct answer.

An Increase in Real GDP Can Shift