A perceived permanent rise in the rate of money growth will cause what long-run effects in the economy?
A) a rise in the nominal rate of interest and a rise in inflation by the same percentage
B) a rise in the nominal rate of interest and a rise in real GDP by the same percentage
C) a fall in the nominal rate of interest and a rise in inflation by the same percentage
D) a fall in the nominal rate of interest and a fall in real GDP by the same percentage

Question

Quizplus · Accepted Answer

According to the Fisher effect, a permanent increase in the rate of money growth leads to a proportional increase in the nominal interest rate and inflation rate, without affecting the real interest rate in the long run.

A Perceived Permanent Rise in the Rate of Money Growth