When the growth rate of the money supply is increased, interest rates will fall immediately if the liquidity effect is ______(larger or smaller) than the other money supply effects and there is _____ (slow or fast) adjustment of expected inflation.

When the growth rate of the money supply is increased, interest rates will fall immediately if the liquidity effect is __(larger or smaller) than the other money supply effects and there is _ (slow or fast) adjustment of expected inflation.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section14.4: Money And Interest Rates

Problem 2ST

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

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