When the Federal Reserve decreases the growth rate of the money supply, the income effect causes the interest rate to while the liguidity effect drives the interest rate Continuing on the same train of thought, when the Fed decreases the growth rate of the money supply, the price level effect drives the interest rate V while the expected inflation rate pushes the interest rate Suppose there is an increase in the growth rate of the money supply. If the liquidity effect is smaller than the income, price-level, and expected inflation effects, and if inflationary expectations adjust slowly. then in the short run, interest rates O A. remain unchanged. O B. fall. C. rise. O D. become unpredictable.
When the Federal Reserve decreases the growth rate of the money supply, the income effect causes the interest rate to while the liguidity effect drives the interest rate Continuing on the same train of thought, when the Fed decreases the growth rate of the money supply, the price level effect drives the interest rate V while the expected inflation rate pushes the interest rate Suppose there is an increase in the growth rate of the money supply. If the liquidity effect is smaller than the income, price-level, and expected inflation effects, and if inflationary expectations adjust slowly. then in the short run, interest rates O A. remain unchanged. O B. fall. C. rise. O D. become unpredictable.
Chapter1: Making Economics Decisions
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Transcribed Image Text:When the Federal Reserve decreases the growth rate of the money supply, the income effect causes the interest rate to
while the liquidity effect drives the interest rate
Continuing on the same train of thought, when the Fed decreases the growth rate of the money supply, the price level effect drives the interest rate
while the expected inflation rate pushes the interest rate
Suppose there is an increase in the growth rate of the money supply. If the liquidity effect is smaller than the income, price-level, and expected inflation effects, and if inflationary expectations adjust slowly, then in
the short run, interest rates
O A. remain unchanged.
O B. fall.
C. rise.
D. become unpredictable.
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