According to the quantity theory of money and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase:

Question

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According to the Fisher equation, the nominal interest rate is the sum of the real interest rate and the inflation rate. If money growth increases by 3 percent, assuming velocity is constant, inflation will also increase by 3 percent. Therefore, the nominal interest rate will increase by the sum of the real interest rate (2 percent) and the inflation rate (3 percent), resulting in a 5 percent increase.

According to the Quantity Theory of Money and the Fisher