An increase in nominal GDP increases the demand for money because
Question
An increase in nominal GDP increases the demand for money because
Solution
An increase in nominal GDP increases the demand for money because:
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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.
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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.
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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.
Similar Questions
If the money supply increases, while prices and velocity remain constant, real GDP will:
An increase in gross domestic product (GDP) is a sign that a country’s economy is:
Nominal GDP is: A. GDP adjusted for inflation B. GDP measured in current prices C. GDP adjusted for population size D. GDP measured in constant dollars
An expansion in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?
If real GDP falls from one period to another, we can conclude thatNone of these necessarily occursnominal GDP fell.prices decreased.inflation occurred.
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