Asked by Felicia Thompson on Jun 07, 2024
Verified
When the money supply is increased,what do monetarists expect to happen to the nominal or market rate of interest?
A) It will rise immediately.
B) It will fall in the short run,then rise in the long run.
C) It will rise in the short run,then fall in the long run.
D) It will fall and remain lower.
E) It will be unchanged.
Nominal Rate
The interest rate before adjustments for inflation, as opposed to the real interest rate which is adjusted.
Money Supply
The total amount of money available within an economy, including cash, coins, and balances in bank accounts, which can affect inflation, interest rates, and economic growth.
- Decode the monetary theories of Milton Friedman and their significance in influencing the direction of economic strategies.
- Examine the monetarists' perspective on the relationship between the money supply and interest rates.
Verified Answer
IL
Ibrain LozoyaJun 08, 2024
Final Answer :
B
Explanation :
Monetarists believe that increasing the money supply will initially lower interest rates due to the greater availability of money. However, in the long run, the increased money supply can lead to inflation, which in turn can cause interest rates to rise as lenders demand higher rates to compensate for the decreased purchasing power of money.
Learning Objectives
- Decode the monetary theories of Milton Friedman and their significance in influencing the direction of economic strategies.
- Examine the monetarists' perspective on the relationship between the money supply and interest rates.