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Unformatted text preview: Keynesian "liquidity" trap Keynesian Monetary transmission linkages See Figure 13.3 on page 277 in the textbook Md = Demand for Money Ms = Supply for Money To increase interest rate -- move money supply to left Investment Demand and Injections % Return on Investment Federal Funds Rate -- what one bank pays another bank to borrow reserves Federal Funds Market Tight Money -- decrease money supply, raise interest rate, reduce investment, reduce GDP...
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- Spring '99
- Monetary Policy