Which of the following statements is the MOST accurate?
In general, under the monetary approach to the exchange rate
A) while the short-run interest rate does not depend on the absolute level of the money supply, continuing growth in the money supply eventually will affect the interest rate.
B) while the long-run interest rate does depend on the absolute level of the money supply, continuing growth in the money supply does not affect the interest rate.
C) while the long-run interest rate does not depend on the absolute level of the money supply, continuing growth in the money supply eventually will affect the interest rate.
D) the long-run interest rate does not depend on the absolute level of the money supply, and thus continuing growth in the money supply will not affect the interest rate.
E) while the short-run interest rate does not depend on the absolute level of the money supply, continuing decline in the money supply eventually will not affect the interest rate.

Question

Quizplus · Accepted Answer

The monetary approach to the exchange rate suggests that in the long run, changes in the absolute level of the money supply will not affect the interest rate. However, in the short run, the interest rate may not depend on the absolute level of the money supply, but continuing growth in the money supply will eventually affect it. Therefore, option C is the most accurate statement.

Which of the Following Statements Is the MOST Accurate