If the growth rate of money changes, there will be short-run effects on real interest rates.

Question

Quizplus · Accepted Answer

A change in the growth rate of money can affect the supply and demand of money, causing changes in the short-term nominal interest rate. The real interest rate, which is adjusted for inflation, can also be impacted in the short-term. However, in the long-run, changes in the growth rate of money have no effect on the real interest rate, as the market adjusts to the new inflation expectation levels.

If the Growth Rate of Money Changes, There Will Be