Suppose the Nominal Interest Rate Is 7 Per Cent While

question 45

Multiple Choice

Suppose the nominal interest rate is 7 per cent while the money supply is growing at a rate of 5 per cent per year. If the government increases the growth rate of the money supply from 5 per cent to 9 per cent, the Fisher effect suggests that, in the long run, the nominal interest rate should become

• A) 4 per cent.
• B) 9 per cent.
• C) 11 per cent.
• D) 12 per cent.
• E) 16 per cent.

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