Which of the following does an increase in the money supply growth rate increase?
A) inflation, nominal interest rates, and real interest rates
B) inflation and nominal interest rates, but it does not change real interest rates
C) inflation and real interest rates, but it does not change nominal interest rates
D) nominal and real interest rates, but it does not change inflation

Question

Quizplus · Accepted Answer

An increase in the money supply growth rate would lead to an increase in inflation due to a greater availability of funds leading to higher demand for goods and services, which raises prices. Nominal interest rates would also increase as lenders would seek a higher return on their loans to compensate for the inflation risk. However, real interest rates, which take inflation into account, would remain unchanged as the inflation increase would cancel out the nominal rate increase.

Which of the Following Does an Increase in the Money