Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases
A)the inflation rate and growth of real GDP.
B)the inflation rate but not the growth rate of real GDP.
C)the growth rate of real GDP,but not the inflation rate.
D)neither the inflation rate nor the growth rate of real GDP.

Question

Quizplus · Accepted Answer

According to monetary neutrality, changes in the money supply growth rate only affect nominal variables, not real variables. The Fisher effect states that an increase in the money supply growth rate leads to an increase in the inflation rate. Therefore, an increase in the money supply growth rate will increase the inflation rate but will not affect the growth rate of real GDP.

Suppose That Monetary Neutrality and the Fisher Effect Both Hold