Suppose the central bank engages in contractionary monetary policy that results in lower money growth. This lower money growth will cause which of the following in the medium run?
A) Lower real interest rates and lower nominal interest rates.
B) Lower real interest rates and higher nominal interest rates.
C) Higher real interest rates and higher nominal interest rates.
D) Higher real interest rates and lower nominal interest rates.
E) No change in real interest rates and lower nominal interest rates.

Question

Quizplus · Accepted Answer

In the medium run, lower money growth leads to lower nominal interest rates due to reduced inflation expectations, while real interest rates remain unchanged as they are determined by real factors in the economy.

Suppose the Central Bank Engages in Contractionary Monetary Policy That