When the Reserve Bank changes the quantity of money, there is an immediate effect on
A) the price level and the inflation rate.
B) the nominal interest rate.
C) the inflation rate but not the price level.
D) real GDP.
E) the price level but not the inflation rate.

Question

Quizplus · Accepted Answer

The immediate effect of the Reserve Bank changing the quantity of money is on the nominal interest rate. Changes in the money supply can lead to adjustments in interest rates as the cost of borrowing money increases or decreases, influencing economic activity and inflation over time. However, the immediate direct effect is on the nominal interest rates rather than directly on inflation, price levels, or real GDP.

When the Reserve Bank Changes the Quantity of Money, There