An increase in the money growth rate in the market clearing model causes:

Question

Quizplus · Accepted Answer

According to the market clearing model, an increase in the money growth rate leads to an increase in the nominal interest rate, a decrease in money demand, and an increase in the price level. These effects occur due to the increase in the supply of money relative to the demand for money, leading to an excess supply of money in the economy. The excess supply of money causes people to hold less money, leading to a decrease in money demand and an increase in spending, resulting in an increase in the price level. The increase in spending also leads to an increase in the demand for loans, causing the nominal interest rate to rise. Therefore, all of the above options are correct.

An Increase in the Money Growth Rate in the Market