In the long run, an increase in the growth rate of the quantity of money_{--------------------} the inflation rate and _{--------------------} the nominal interest rate. A)raises; does not change B)raises; raises C)raises; lowers D)lowers; raises E)lowers; lowers

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Quizplus · Accepted Answer

In the long run, an increase in the growth rate of the quantity of money raises the inflation rate due to more money chasing the same amount of goods, leading to higher prices. It also raises the nominal interest rate because lenders demand higher rates to compensate for the loss of purchasing power due to inflation.

In the Long Run, an Increase in the Growth Rate