When the Fed changes the quantity of money, there is an immediate effect on
A) the nominal interest rate.
B) real GDP.
C) the price level but not the inflation rate.
D) the inflation rate but not the price level.
E) the price level and the inflation rate.

Question

Quizplus · Accepted Answer

When the Fed changes the quantity of money, it affects the supply and demand for loanable funds, leading to an immediate effect on the nominal interest rate. This is because an increase in the money supply lowers the interest rate, while a decrease in the money supply raises it. Changes in the quantity of money also affect other economic variables, but those effects may take longer to manifest.

When the Fed Changes the Quantity of Money, There Is