Money demand will increase if the price level ________ or if real GDP ________.
A)increases; decreases
B)decreases; decreases
C)increases; increases
D)decreases; increases

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the price level will increase the demand for money because people need more money to make purchases. Similarly, an increase in real GDP will also increase the demand for money because more economic activity means more transactions, which require more money. Therefore, the correct answer is C.

Money Demand Will Increase If the Price Level ________ or If