Question on: JAMB Economics - 2023
An increase in total production (real GDP) causes the demand for money to ______and the interest rate to _________
A
Increase; decrease
B
Decrease; decrease
C
Increase; increase
D
Decrease; increase
Ask EduPadi AI for a detailed answer
Correct Option: C
An increase in total production (real GDP) causes the demand for money to increase and the interest rate to increase. This relationship is often explained by the Quantity Theory of Money.
When real GDP rises, individuals and businesses need more money to facilitate increased transactions. As the demand for money increases, lenders raise interest rates to benefit from lending money, leading to an increase in the interest rate.
Add your answer
Please share this, thanks!
No responses