An Increase in Real GDP Affects the Demand for Money

question 47

Multiple Choice

An increase in real GDP affects the demand for money because

• A) when real GDP increases, more money is needed to make expenditures.
• B) at the higher price level, it takes more dollars to make expenditures.
• C) tax payments rise because more income is earned.
• D) there is an inverse relationship between the quantity money demanded and nominal GDP.
• E) the larger real GDP, the higher the real interest rate.

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Definitions:

Variable Costs

Costs that change in direct proportion to changes in the level of production or sales activity, such as raw materials and direct labor.

Fixed Costs

expenses that do not vary with changes in production volume or sales, such as rent, salaries, and insurance.

Standard Cost Accounting System

A system that assigns expected costs to products to estimate selling prices and cost control, allowing variance analysis for actual costs incurred.

Unfavorable Variances

Differences between actual and expected outcomes that negatively affect a business's financial performance.