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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Suppose the money supply rises on Tuesday and by Thursday the interest rate has risen also. Is the rise in the interest rate more likely the result of the income effect or of the expectations effect? Explain your answer.

To determine

The interest rate.

Explanation

The rise in the interest rate is largely due to the expectation effect. The increase in money supply creates an expectation for a higher inflation, and this leads to an increase in the interest rates...

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