In the short run, an increase in the growth rate of the money supply ________ the nominal interest rate and in the long run it ________ the nominal interest rate.
A) raises; raises
B) raises; lowers
C) lowers; raises
D) lowers; lowers
E) does not change; raises

Question

Quizplus · Accepted Answer

In the short run, an increase in the money supply typically lowers the nominal interest rate due to increased liquidity. In the long run, however, it raises the nominal interest rate as inflation expectations adjust upwards.

In the Short Run, an Increase in the Growth Rate