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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." 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

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: The Short-run Trade-off Between Inflation And Unemployment
Section: Chapter Questions
Problem 5CQQ
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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." 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 short-run interest rates, the Fed should always the money supply. the growth rates of a) Interest Rate i ¹2 1₁ Interest Rate i ¹2 I + T 1 I I I I T 1 1 T T I I I 1 1 Time Time
Transcribed Image Text: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 short-run interest rates, the Fed should always the money supply. the growth rates of a) Interest Rate i ¹2 1₁ Interest Rate i ¹2 I + T 1 I I I I T 1 1 T T I I I 1 1 Time Time
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