Unformatted text preview: normal levels since they were already producing at or near capacity. 5. In the long-run, interest rates will remain fairly stable unless the economy is thrown into a recession. Then prices may begin to fall resulting in some deflation and lower long-term interest rates in the long run. Decreasing the money supply to increase interest rates in the short run would be rational if the economy were to begin over heating with real growth rates in excess 36 of 2.5% to 3.5%, and signs of ensuing inflation. The higher interest rates would be used to cool the economy down....
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- Fall '10