Suppose That Monetary Neutrality and the Fisher Effect Both Hold

question 99

Multiple Choice

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

• A)both higher inflation and higher nominal interest rates.
• B)a higher inflation rate,but not higher nominal interest rates.
• C)a higher nominal interest rate,but not higher inflation.
• D)neither a higher inflation rate nor a higher nominal interest rate.

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Definitions:

Perpetual Inventory System

An accounting method that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

Exchange Rates

The value of one currency for the purpose of conversion to another, determining how much one currency is worth in terms of the other.

Forward Exchange Contract

An agreement to exchange currencies at a specified rate on a predetermined future date, used to hedge against currency risk.

Net Income

The net income of a company, calculated by deducting all costs and taxes from the overall revenue.