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Since he first heard about Gatsby, Nick has been hearing rumors about all the illegal and underhanded activities Gatsby is possibly involved in - even, perhaps, killing a man. Nick expects Gatsby to be someone he will despise, for as he states in chapter 1, Gatsby "represent(s) everything for which (he has) an unaffected scorn." However, when he finally meets him, Nick finds that he really likes Gatsby, and he wants to believe the best of him.
When, in chapter 7, the group makes their spontaneous trip to New York and ends up in an uncomfortable conversation in the hotel room, everyone is on edge. Tom, who has by this time figured out Gatsby has been having an affair with his wife, wants to put Gatsby on the spot. So, he confronts him:
“By the way, Mr. Gatsby, I understand you’re an Oxford man.”
“Oh, yes, I understand you went to Oxford.”
“Yes — I went there.”
Tom, not believing what he is hearing, pushes Gatsby further, demanding to know when he was there. Gatsby replies:
“It was in nineteen-nineteen, I only stayed five months. That’s why I can’t really call myself an Oxford man.... It was an opportunity they gave to some of the officers after the Armistice.... We could go to any of the universities in England or France.”
To this, Nick responds:
I wanted to get up and slap him on the back. I had one of those renewals of complete faith in him that I’d experienced before.
Daisy rose, smiling faintly, and went to the table.
“Open the whiskey, Tom,” she ordered, “and I’ll make you a mint julep. Then you won’t seem so stupid to yourself. . . . Look at the mint!”
Both Nick and Daisy are happy at this point to see that the faith they have placed in Gatsby is not unfounded. They are happy to finally hear an explanation from Gatsby that makes sense - Gatsby has not lied about this, so perhaps, what he has said about himself in other cases is true as well.
To Nick, this is a great relief. He does not want to believe his friend is a lying, perhaps even murderous criminal. Additionally, he is especially happy to see Tom made to look foolish - for, by this point, he has lost any respect he ever had for Tom.
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