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According to the liquidity preference model, increasing money supply will lead to a lower nominal interest...

According to the liquidity preference model, increasing money supply will lead to a lower nominal interest rate. But according to the quantity theory (Fisher effect), it will lead to a higher nominal interest rate. Can you explain?

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Answer #1

in liquidity preference model, money supply is verticle and money demand is dawnword sloping so as fixed money demand if we increase the money supply the intrest rate decreases and vice versa

The Fisher Effect is not just an equation  equation,  It represents  how the money supply affects the nominal interest rate and inflation rate .

For example, if a change in a central bank's monetary policy would push the country's inflation rate to rise by 15 %  points, then the nominal interest rate of the same economy would follow suit and increase by 15 % points as well. therefore it may be assumed that a change in the money supply will not affect real interest rate. It will directly reflect their changes in the nominal interest rate.

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