Use the Following Figure to Nswer the Question

question 58

Multiple Choice

Use the following figure to nswer the question :

-The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure,one can conclude that the

• A)liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
• B)liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
• C)liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.
• D)liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.