The long-run effect of an increase in the growth rate of the quantity of money is a
A) lower real interest rate.
B) higher real interest rate.
C) lower nominal interest rate.
D) higher nominal interest rate.
E) lower inflation rate.

Question

Quizplus · Accepted Answer

An increase in the growth rate of the quantity of money leads to an excess supply of money in the economy, which in turn leads to an increase in the nominal interest rate. Therefore, the long-run effect of an increase in the growth rate of the quantity of money is a higher nominal interest rate.

The Long-Run Effect of an Increase in the Growth Rate