Ceteris paribus, which of the following situations would result in the largest quantity of money demanded?
A)When nominal GDP = $1.4 trillion and the interest rate is 3 percent.
B)When nominal GDP = $1.4 trillion and the interest rate is 6 percent.
C)When nominal GDP = $1.2 trillion and the interest rate is 5 percent.
D)When nominal GDP = $800 billion and the interest rate is 4 percent.

Question

Ceteris paribus, which of the following situations would result in the largest quantity of money demanded?
A)​When nominal GDP = $1.4 trillion and the interest rate is 3 percent.
B)​When nominal GDP = $1.4 trillion and the interest rate is 6 percent.
C)​When nominal GDP = $1.2 trillion and the interest rate is 5 percent.
D)​When nominal GDP = $800 billion and the interest rate is 4 percent.

Quizplus · Accepted Answer

According to the quantity theory of money, the quantity of money demanded is directly proportional to nominal GDP. So, a higher nominal GDP will lead to a higher quantity of money demanded. Among the given options, option A has the highest nominal GDP of $1.4 trillion, and therefore, it will result in the largest quantity of money demanded. The interest rate does not affect the quantity of money demanded in the given options, as the question asks to consider ceteris paribus.

Ceteris Paribus, Which of the Following Situations Would Result in the Largest