In the medium run, an increase in the rate of growth of nominal money will cause:
A) lower nominal and lower real interest rates.
B) lower nominal interest rates and an increase in the real interest rate.
C) higher nominal interest rates and no change in the real interest rate.
D) an increase in inflation and an increase in output growth.
E) a less than proportionate increase in inflation.

Question

Quizplus · Accepted Answer

In the medium run, an increase in the growth rate of nominal money leads to higher nominal interest rates due to the Fisher effect, while the real interest rate remains unchanged as it is determined by real factors.

In the Medium Run, an Increase in the Rate of Growth