As nominal Gross Domestic Product (GDP) decreases, people hold

Question

Quizplus · Accepted Answer

As nominal GDP decreases, it indicates a decrease in overall economic activity and consumption, which means people will have less money to spend on purchases. Therefore, they will hold less money as they will be making fewer purchases. Option A is incorrect because if people anticipate a decrease in economic activity, they may want to save less and spend more to stimulate the economy. Option B is incorrect because if interest rates are low due to a decrease in economic activity, people will not have an incentive to save. Option C is also incorrect because if people feel less secure about their economic situation, they may want to hold more money as a precautionary measure.

As Nominal Gross Domestic Product (GDP) Decreases, People Hold