In the short run, decreases in the growth rate of the money supply will ________ nominal rates of interest and ________ real rates of interest.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase

Question

Quizplus · Accepted Answer

In the short run, decreases in the growth rate of the money supply will increase nominal rates of interest due to the liquidity effect and increase real rates of interest as the economy adjusts to the tighter monetary conditions, which can slow down investment and economic activity.

In the Short Run, Decreases in the Growth Rate of the Money