The demand for money is:
A)positively related to nominal GDP and to the level of interest rates available on other financial assets.
B)negatively related to nominal GDP and to the level of interest rates available on other financial assets.
C)positively related to nominal GDP and negatively related to the level of interest rates available on other financial assets.
D)negatively related to nominal GDP and positively related to the level of interest rates available on other financial assets.

Question

Quizplus · Accepted Answer

The demand for money is positively related to nominal GDP as an increase in income leads to an increase in the demand for money. However, the demand for money is negatively related to the level of interest rates available on other financial assets. When interest rates are high, people tend to hold less money as they can earn higher returns by investing in other financial assets. Conversely, when interest rates are low, people tend to hold more money as the opportunity cost of holding money is lower. Therefore, the correct answer is C, which indicates that the demand for money is positively related to nominal GDP and negatively related to the level of interest rates available on other financial assets.

The Demand for Money Is