If real GDP decreases, the demand for money curve will shift
A) leftward and the interest rate will rise.
B) leftward and the interest rate will fall.
C) rightward and the interest rate will rise.
D) rightward and the interest rate will fall.

Question

Quizplus · Accepted Answer

When real GDP decreases, the demand for money decreases because there is less economic activity requiring transactions. This shift in the demand for money curve to the left leads to a lower interest rate, as there is less competition for available funds.

If Real GDP Decreases, the Demand for Money Curve Will