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 and the Fisher effect, an increase in the money supply growth rate will cause an equivalent increase in the inflation rate. Additionally, the Fisher effect states that the nominal interest rate will increase by the same percentage as the inflation rate. Therefore, both the inflation rate and the nominal interest rate will rise by the same percentage.

Suppose That Monetary Neutrality and the Fisher Effect Both Hold