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.

Question

Quizplus · Accepted Answer

An increase in real GDP means increased production and higher income, leading to a rise in the demand for money for transactions and speculative purposes (i.e., holding money for later investment opportunities). The increased demand for money will shift the money demand curve to the right. As a result, the equilibrium interest rate will increase to balance the money market.

An Increase in Real GDP Can Shift