In which of the following situations is it certain that the quantity of money demanded by the public will decrease?
A) Nominal GDP decreases and the interest rate decreases.
B) Nominal GDP increases and the interest rate decreases.
C) Nominal GDP decreases and the interest rate increases.
D) Nominal GDP increases and the interest rate increases.

Question

Quizplus · Accepted Answer

When Nominal GDP decreases and the interest rate increases, it is certain that the quantity of money demanded by the public will decrease. When Nominal GDP decreases, people have less income and less money to spend, so they demand less money. When interest rates increase, it becomes more expensive to borrow money, so people also demand less money. Therefore, option C is the best choice.

In Which of the Following Situations Is It Certain That