The structure of the short-run model is best described by Nominal interest rate $\rightarrow$ Real interest rate $\rightarrow$ Change in inflation.

Question

The structure of the short-run model is best described by Nominal interest rate $\rightarrow$  Real interest rate $\rightarrow$  Change in inflation.

Quizplus · Accepted Answer

The short-run model typically describes the relationship as Nominal interest rate $\rightarrow$ Real interest rate $\rightarrow$ Aggregate demand $\rightarrow$ Output gap $\rightarrow$ Change in inflation.

The Structure of the Short-Run Model Is Best Described by Nominal