Suppose the nominal interest rate is 4 percent and the price level is 110. If the Fed increases the quantity of money, in the short run
A) the price level falls below 110.
B) the nominal interest rate rises above 4 percent.
C) neither the nominal interest rate nor the price level change.
D) the nominal interest rate falls below 4 percent.
E) None of the above answers are correct.

Question

Quizplus · Accepted Answer

In the short run, an increase in the quantity of money typically leads to a decrease in the nominal interest rate due to the increased supply of money, making borrowing cheaper.

Suppose the Nominal Interest Rate Is 4 Percent and the Price