In the medium run, lower money growth is associated with: Group of answer choices lower real interest rates and lower nominal interest rates lower real interest rates and higher nominal interest rates higher real interest rates and higher nominal interest rates higher real interest rates and lower nominal interest rates none of the above
Question
In the medium run, lower money growth is associated with: Group of answer choices
lower real interest rates and lower nominal interest rates
lower real interest rates and higher nominal interest rates
higher real interest rates and higher nominal interest rates
higher real interest rates and lower nominal interest rates
none of the above
Solution
In the medium run, lower money growth is typically associated with higher real interest rates and lower nominal interest rates.
Here's why:
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When the growth rate of money supply decreases, it means there is less money circulating in the economy.
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This decrease in money supply can lead to an increase in the demand for money, which in turn can lead to an increase in real interest rates.
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At the same time, a lower growth rate of money supply can lead to lower inflation expectations.
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Lower inflation expectations can lead to lower nominal interest rates, as nominal interest rates are typically the sum of the real interest rate and expected inflation.
So, the correct answer is "higher real interest rates and lower nominal interest rates".
Similar Questions
In the short run, higher money growth is associated with: a) lower real interest rates and lower nominal interest rates b) lower real interest rates and higher nominal interest rates c) higher real interest rates and higher nominal interest rates d) higher real interest rates and lower nominal interest rates e) none of the above
Which of the following is not a well documented fact about money?Group of answer choicesMoney growth determines real interest rates in the long runInflation is a monetary phenomenon in the long run.Money is neutral with respect to output and unemployment in the long run.Money growth, nominal interets rate and inflation are all closely related in the long run.
An expansion in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?
An increase in the interest rateA) increases the demand for money.B) increases the quantity of money demanded.C) decreases the demand for money.D) decreases the quantity of money demanded.
If we think about interest rates as the price of money, thenGroup of answer choicesgreater supply of money will lower interest rates.lower supply of money will raise interest rates.all of these are true.lower demand for money will lower interest rates.greater demand for borrowing will increase interest rates.
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