In the long run, a decrease in the growth rate of the money supply will cause
A) nominal interest rates to decrease and decrease the real interest rate.
B) nominal interest rates to increase and will increase the real interest rate.
C) nominal interest rates to increase and will not affect the real interest rate.
D) nominal interest rates to decrease and will not affect the real interest rate.

Question

Quizplus · Accepted Answer

In the long run, a decrease in the growth rate of the money supply leads to lower inflation expectations, which reduces nominal interest rates. The real interest rate is determined by real factors like productivity and time preferences, and is not affected by changes in the money supply.

In the Long Run, a Decrease in the Growth Rate