Question

The fed increases the quantity of money. in the short run, the quantity of money demanded ______ and the nominal interest rate ______.

Answer 1

The quantity of money demanded increases and the nominal interest rate falls.

In the short run, if the Fed(Federal Reserve) increases the quantity of money, the quantity of money demanded will increase and the nominal interest rate falls.  

The quantity of the money supplied and the nominal interest rates has an inverse relation. That is, when there is a huge supply of money in a short-term, it will cause an increase in the nominal interest rate.

The nominal interest rate refers to the interest rate before adjusting to inflation or price-hike. It balances the supply and demand of money.

So when there is an increase in the supply of money ,there will be the resulting increase in the demand of money too. The total money that the population wants to hold is referred as the money demanded.

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