The demand for real money balances is:
A) proportional to nominal income.
B) proportional to real income.
C) disproportional to real GDP.
D) determined by the real rate of interest.

Question

Quizplus · Accepted Answer

The demand for real money balances is determined by the real rate of interest, as people hold money as a store of value that earns no interest. When the real interest rate rises, the opportunity cost of holding money also rises, leading to a decrease in the demand for money. Therefore, the correct answer is D, and the other options are incorrect.

The Demand for Real Money Balances Is