True or False?
True! The central bank can control the rate of inflation in the long run by adjusting the rate of money growth. This gives it effective, though not pinpoint, control over the expected rate of inflation. And market---that is, nominal---interest rates will vary directly with the expected rate of inflation. Central banks of small countries like New Zealand cannot effectively control real interest rates, however, unless they can engineer recognizable (to the public) overshooting exchange rate changes.