If the rate of inflation increase the fed should

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
If the rate of inflation increase, the Fed should increase the Federal Funds Rate. Because the increase in the FFR will have a decrease in Money supply.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
If there is a economic contraction, the Fed should lower the Federal Funds Rate, because the decrease in FFR will have an increase in Money supply to solve the economic contraction. 3. Briefly describe the effects of an increase in interest rates on the demand for money in a. the classical Md=Kpy Interest rate will not affect money demand, because it doesn’t play role in classical model. b. the Keynesian model Md=f(i, Y) The changes in the interest rate affect the Demand of money. Increase in Interest rate will lead to a decrease in quantity demanded. c. the monetarist model. In the monetarist model, the money demand depend on the return to money compared to the return on bonds, the return on money compared to the return on equity and the return on money compared to the return on assets. If the interest rate of all those change together , it would not affect the money demand. The demand of money only changes when the return of assets changes.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern