An increase in real GDP affects the demand for money because
A)when real GDP increases, more money is needed to make expenditures.
B)there is an inverse relationship between the quantity money demanded and nominal GDP.
C)at the higher price level, it takes more dollars to make expenditures.
D)the larger real GDP, the higher the real interest rate.
E)tax payments rise because more income is earned.

Question

Quizplus · Accepted Answer

An increase in real GDP means more goods and services are being produced and consumed, which requires more money for transactions, thus increasing the demand for money.

An Increase in Real GDP Affects the Demand for Money