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Question: suppose that the liquidity effect is immediate and smaller than...

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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 Interest Rate V the When the Fed wants to raise the expected inflation, it should growth rate of the money supply. 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 short-run interest rates, the Fed should always the money supply. ▼ | the growth rates of Time a) Interest Rate リ Time

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