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The Financial Effects Of Monetary Policy On Interest Rates
Part 1 of Paper
....uential. Darby suggests that an increase in the rate of growth of the money supply leads to a pattern of changes in the interest rate that reflects the interaction of the liquidity, income, and expectations effects which vary over time in relative strength. The liquidity effect involves the immediate impact of moneta.... Part 2 of Paper
....he immediate impact of monetary policy on the interest rate is known as the liquidity effect. However, over time “aggregate demand for goods is increased both by direct impacts of the falling interest rate on investment demand and of excess cash balances on purchases of consumers’ durable goods and by indirect multiplier effects of the direct increase in spending” (Darby 1975). This then contributes to an increase in income and prices, which then increases the demand for money. This eff.... |
| Number of words: 1334 - Approximate pages: 5 |
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