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The Financial Effects Of Monetary Policy On Interest Rates
Beginning of essay
In summary of Michael Darby’s article involving , three specific effects emerge as the most influential. Darby suggests that an increase in the rate of growth of the money supply leads to a pattern of changes in the interest rate that reflects the interaction of the liquidity, income, and expecta ....
Middle of essay
.... increase in income and prices, which then increases the demand for money. This effect is depicted in graph #1 below.
Regarding the income effect, its theory is derived from “the combined impact on the nominal interest rate of the temporary increase in real income above its equilibrium growth path and the permanent increase in the growth path of the price level” (Darby 1975). Darby suggests that the low interest rate causes a high aggregate demand. Companies borrow money to invest and then .... |
| Number of words: 1334 |
Approximate pages: 5 |
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