Author Question: If the quantity of money starts to grow more rapidly than real GDP and velocity does not change, the ... (Read 69 times)

urbanoutfitters · **on:** Jun 29, 2018

If the quantity of money starts to grow more rapidly than real GDP and velocity does not change, the result is

A) slower growth in the price level.
B) an increase in investment.
C) more rapid growth in potential GDP.
D) the inflation rate rises.
E) an eventual slowing in the growth rate of the quantity of money.

Question 2

During periods when the inflation rate is positive, how does the real interest rate compare to the nominal interest rate?

What will be an ideal response?

covalentbond · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

The real interest rate equals the nominal interest rate minus the inflation rate or, by rearranging, the nominal interest rate equals the real interest rate plus the inflation rate. This latter specification shows that when the inflation rate is positive, the nominal interest rate is greater than the real interest rate.