In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

Question

Quizplus · Accepted Answer

In the short run, changes in the money supply can influence interest rates due to the liquidity effect, but in the long run, interest rates are determined by real factors such as productivity and savings-investment balances, rendering the money supply's impact neutral due to price level adjustments.

In the Short Run, Changes in the Money Supply Change