Question on: JAMB Economics - 2023
The demand for money will fall if
A
People expect deflation soon
B
Real GDP rises
C
Real interest rates rise
D
The GDP deflator rises
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Correct Option: C
The demand for money will fall if real interest rates rise. The demand for money is influenced by several factors, including expectations of future inflation or deflation.
When real interest rates rise, the opportunity cost of holding money increases because individuals could earn higher returns by investing in interest-bearing assets. As a result, people tend to hold less money, and the demand for money falls.
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