Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate raises.

Question

Quizplus · Accepted Answer

According to monetary neutrality, changes in the money supply growth rate do not affect real variables, only nominal variables. The Fisher effect states that an increase in the money supply growth rate will lead to an increase in the nominal interest rate. With both of these assumptions holding, an increase in the money supply growth rate will result in an increase in both the inflation rate and nominal interest rates. Therefore, the correct answer is A.

Suppose That Monetary Neutrality and the Fisher Effect Both Hold