Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?
A) The money supply growth rate is 2 percent.
B) The real interest rate is 6 percent.
C) The real interest rate is 4 percent.
D) The money supply growth rate is 6 percent.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if velocity and output are constant, the money supply growth rate equals the inflation rate, which is 2 percent.

Suppose That Velocity and Output Are Constant and That the Quantity