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

Question

Quizplus · Accepted Answer

In the long run, a decrease in the growth rate of the money supply will lead to lower nominal interest rates due to reduced inflation expectations, but it will not affect real interest rates, which are determined by real factors like productivity and time preferences.

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