If the money supply growth rate permanently increased from 4 percent to 10 percent, what would we expect to happen to the inflation rate and the nominal interest rate?

Question

Quizplus · Accepted Answer

According to the quantity theory of money, a permanent increase in the money supply growth rate leads to a proportional increase in the inflation rate. The Fisher effect suggests that nominal interest rates adjust to expected inflation, so both the inflation rate and nominal interest rate would increase by 6 percent.

If the Money Supply Growth Rate Permanently Increased from 4