With sticky prices increasing, the supply of money results in:

Question

Quizplus · Accepted Answer

With sticky prices, an increase in the supply of money leads to a decrease in the real interest rate, which in turn leads to an increase in output and prices. This increase in prices results in a decrease in the real value of money balances held by households and firms, thereby leading to an increase in the demand for money. To satisfy this increased demand for money, the nominal interest rate must fall. Therefore, an increase in the supply of money would result in a decrease in the nominal interest rate.

With Sticky Prices Increasing, the Supply of Money Results In