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lectur4-page37 - expensive credit 3. An increase in...

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If the economy were experiencing low growth and high unemployment, decreasing the money supply to increase interest rates in the short run would probably not be the wisest monetary policy action to take. Such action by the Fed would in all probability throw the economy into a recession. Let’s look at what happens anyway. 1. An increase in short-term interest rates in the short run 2 An decrease in consumption due to lower discretionary incomes and more 2. An decrease in consumption due to lower discretionary incomes and more
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Unformatted text preview: expensive credit 3. An increase in inventories due to the dampening of consumption relative to production in the short run 4. Managers respond by decreasing prices to bring inventories back to their normal levels since they were already producing below capacity. 5. In the long-run, long-term interest rates may decrease as the economy is thrown into a recession and due to the deflation that may occur. 37...
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.

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