An increase in nominal GDP increases the demand for money because:

1. **Transaction Motive**: As nominal GDP rises, the overall level of economic activity increases. This means more goods and services are being produced and consumed, leading to a higher volume of transactions. People and businesses need more money to facilitate these additional transactions.

2. **Precautionary Motive**: With higher nominal GDP, individuals and businesses may hold more money as a precautionary measure to cover unexpected expenses or opportunities that arise from increased economic activity.

3. **Speculative Motive**: Although less directly related, an increase in nominal GDP can influence expectations about future economic conditions, potentially affecting the demand for money for speculative purposes.

In summary, as nominal GDP increases, the demand for money rises primarily due to the need to support a higher volume of transactions in the economy.

Question

An increase in nominal GDP increases the demand for money because:

1. **Transaction Motive**: As nominal GDP rises, the overall level of economic activity increases. This means more goods and services are being produced and consumed, leading to a higher volume of transactions. People and businesses need more money to facilitate these additional transactions.

2. **Precautionary Motive**: With higher nominal GDP, individuals and businesses may hold more money as a precautionary measure to cover unexpected expenses or opportunities that arise from increased economic activity.

3. **Speculative Motive**: Although less directly related, an increase in nominal GDP can influence expectations about future economic conditions, potentially affecting the demand for money for speculative purposes.

In summary, as nominal GDP increases, the demand for money rises primarily due to the need to support a higher volume of transactions in the economy.

Knowee AI · Accepted Answer

An increase in nominal GDP increases the demand for money because:

1. **Transaction Motive**: As nominal GDP rises, the overall level of economic activity increases. This means more goods and services are being produced and consumed, leading to a higher volume of transactions. People and businesses need more money to facilitate these additional transactions.

2. **Precautionary Motive**: With higher nominal GDP, individuals and businesses may hold more money as a precautionary measure to cover unexpected expenses or opportunities that arise from increased economic activity.

3. **Speculative Motive**: Although less directly related, an increase in nominal GDP can influence expectations about future economic conditions, potentially affecting the demand for money for speculative purposes.

In summary, as nominal GDP increases, the demand for money rises primarily due to the need to support a higher volume of transactions in the economy.

An increase in nominal GDP increases the demand for money because

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