If Consumption Depends Positively on the Level of Real Balances

question 106

Multiple Choice

If consumption depends positively on the level of real balances and real balances depend negatively on the nominal interest rate in a neoclassical model, then the nominal interest rate:

• A) declines when the money growth rate rises.
• B) is unchanged when the money growth rate rises.
• C) rises 1 percent for each 1 percent rise in the money growth rate.
• D) rises less than 1 percent for each 1 percent rise in the money growth rate.