Answer to Question #152450 in Macroeconomics for enny

Question

Suppose the Bank Negara Malaysia change the quantity of money in the economy. Graphically illustrate how does this change affect the interest rate in the long run?

Answer 1

In long run a large rate of money growth results to larger inflation without affecting output or employment. If the central bank raises the income growth rates, causing larger inflation, nominal and real interest rates may fall.