Question

An increase in real GDP__________

a. increases the buying and selling of goods and increases the demand for money as a medium of exchange.
b. increases the buying and selling of goods and decreases the demand for money as a medium of exchange.
c. decreases the buying and selling of goods and increases the demand for money as a medium of exchange.
d. decreases the buying and selling of goods and decreases the demand for money as a medium of exchange.

Answer 1

Answer: Option A

Explanation: Real gross domestic product is the value of the goods and services produced in the economy stated in terms of base year prices. The real GDP is adjusted for the inflated prices, thus, it is seen as the more appropriate measure of valuing the GDP.

As, the value of GDP in real GDP is adjusted for base year prices we can conclude that if there is an increase in it then it must be due to the increase in the quantity of goods and services bought and sold and it will result in an increase in the demand for money.