Investment depends on the ______ interest rate, and money demand depends on the ______ interest rate.
A) real; real
B) nominal; nominal
C) real; nominal
D) nominal; real

Question

Quizplus · Accepted Answer

Investment decisions are based on the real interest rate (nominal interest rate minus inflation), as this reflects the true return on investment. Money demand, on the other hand, depends on the nominal interest rate, as this determines the opportunity cost of holding money instead of interest-bearing assets.

Investment Depends on the ______ Interest Rate, and Money Demand