As aggregate output rises,the demand for money ________ and the interest rate ________,so that money demanded equals money supplied and the money market is in equilibrium.
A)increases;rises
B)increases;falls
C)decreases;rises
D)decreases;falls

Question

Quizplus · Accepted Answer

As aggregate output rises, the demand for money increases because more transactions are taking place, requiring more money to facilitate these transactions. As the demand for money increases, the interest rate rises to balance the money market by equating the quantity of money demanded with the quantity of money supplied. Higher interest rates make holding money more expensive, which helps bring the demand for money back in line with the supply.

As Aggregate Output Rises,the Demand for Money ________ and the Interest