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.

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Definitions:

Future Cash Flows

Future cash flows refer to the estimated amounts of money to be received or paid by a business in the future, often used in investment analysis and valuation.

Present Value

The immediate monetary value of a future sum of money or cash flow sequences, utilizing a known rate of return for calculation.

Excel

A spreadsheet program created by Microsoft that allows users to organize, format, and calculate data with formulas using a system of cells arranged in rows and columns.

Calculation

The process of determining a result numerically, often involving mathematical operations and formulas.