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

Question

Quizplus · Accepted Answer

If monetary neutrality and the Fisher effect both hold, then an increase in the money supply growth rate will only raise the inflation rate, but it will not affect the growth rate of real GDP. This is because monetary neutrality implies that changes in the money supply do not affect real variables such as output and employment, while the Fisher effect suggests that changes in the money supply growth rate affect only the nominal interest rate and the inflation rate, leaving the real interest rate and real GDP growth rate unchanged. Therefore, the correct answer is (B) - the inflation rate but not the growth rate of real GDP.

Suppose That Monetary Neutrality and the Fisher Effect Both Hold