In the Liquidity Preference Framework,a One-Time Increase in the Money

question 132

Multiple Choice

In the liquidity preference framework,a one-time increase in the money supply results in a price level effect. The maximum impact of the price level effect on interest rates occurs

• A)at the moment the price level hits its peak (stops rising)because both the price level and expected inflation effects are at work.
• B)immediately after the price level begins to rise,because both the price level and expected inflation effects are at work.
• C)at the moment the expected inflation rate hits its peak.
• D)at the moment the inflation rate hits it peak.

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