According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases
A)inflation, nominal interest rates, and real interest rates.
B)inflation and nominal interest rates, but does not change real interest rates.
C)inflation and real interest rates, but does not change nominal interest rates.
D)neither inflation, nominal interest rates, or real interest rates.

Question

Quizplus · Accepted Answer

According to the Fisher effect, an increase in the money supply growth rate will lead to higher nominal interest rates, but since real interest rates reflect the true return on investment, they should remain unchanged in the long run. While an increase in the money supply growth rate initially leads to inflation, the effect on real interest rates is negligible. Therefore, the correct answer is that an increase in the money supply growth rate increases inflation and nominal interest rates but does not change real interest rates.

According to Monetary Neutrality and the Fisher Effect, an Increase