When the nominal interest rate is constant,________ in the growth rate of the money supply ________ the inflation rate,and ________ the debt-to-GDP ratio.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, when the nominal interest rate is constant, a decrease in the growth rate of the money supply decreases the inflation rate. This is because the quantity theory of money states that the inflation rate is directly proportional to the growth rate of the money supply. As for the debt-to-GDP ratio, when the growth rate of the money supply decreases, it becomes more difficult for the government to borrow money, so the debt-to-GDP ratio increases.

When the Nominal Interest Rate Is Constant,________ in the Growth