Suppose that the liquidity effect is immediate and smaller than the other effects, and our expectations of inflation adjust slowly. Referring to the graphs on the right, choose the time path of interest rates from an increase in the growth rate of the money supply that occurs at time "T." A. Graph A B. Graph B When the Fed wants to raise the expected inflation, it should growth rate of the money supply. the If the Fed is only concerned about the short-run economym the liquidity effect is smaller than the other effects and expected inflation adjusts slowly, then to lower the growth rates of the short-run interest rates, the Fed should always the money supply. a) Interest Rate i ¹2 N N 1₁ F Interest Rateli ¹2 T T I 1 I 1 I I 11 T I Time Time

Suppose that the liquidity effect is immediate and smaller than the other effects, and our expectations of inflation adjust slowly. Referring to the graphs on the right, choose the time path of interest rates from an increase in the growth rate of the money supply that occurs at time "T." A. Graph A B. Graph B When the Fed wants to raise the expected inflation, it should growth rate of the money supply. the If the Fed is only concerned about the short-run economym the liquidity effect is smaller than the other effects and expected inflation adjusts slowly, then to lower the growth rates of the short-run interest rates, the Fed should always the money supply. a) Interest Rate i ¹2 N N 1₁ F Interest Rateli ¹2 T T I 1 I 1 I I 11 T I Time Time

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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