As real GDP falls, a. money demand falls, so the interest rate rises. b. money demand rises, so the interest rate rises. c. money demand rises, so the interest rate falls d. money demand falls, so the interest rate falls.
a. money demand falls, so the interest rate rises.
Explanation:
As Real GDP declines means decline in overall demand that will lead to lower money demand , so as demand is lower for money the interest rate should decline. This is the expected behaviour of the economy.
