If consumption depends positively on the level of real balances and real balances depend negatively on the nominal interest rate, then the nominal interest rate:

Question

Quizplus · Accepted Answer

When the money growth rate rises, it increases the supply of money, leading to higher inflation expectations. This typically results in a rise in the nominal interest rate, but due to the Fisher effect, the increase in the nominal interest rate is usually less than the increase in the money growth rate.

If Consumption Depends Positively on the Level of Real Balances