After identifying one combination of interest rates and GDP for which the demand for money is equal to the supply of money (equilibrium), to maintain the equilibrium if GDP rises:
A) this would not affect interest rates.
B) interest rates would have to fall.
C) interest rates would have to rise.
D) interest rates would not be in parity with foreign rates of interest.

Question

Quizplus · Accepted Answer

When GDP rises, typically, the demand for money increases as businesses and consumers spend more. To maintain the equilibrium between the demand for money and the supply of money, interest rates would have to rise. Higher interest rates can temper the demand for money, bringing it back into equilibrium with the supply.

After Identifying One Combination of Interest Rates and GDP for Which