What if, at a low level of interest rates, the money demand curve became nearly horizontal, as
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What if, at a low level of interest rates, the money demand curve became nearly horizontal, as in the following graph. That is, with interest rates so low, the public would not find it attractive to hold bonds; thus, money demand would be very high. Many argue that this was the position of the U.S. economy in 2003. If the Fed decided to expand the money supply in the graph, what would be the impact on interest rates?
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This is what Keynes called a liquidity trap Expanding the money suppl...View the full answer
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Related Book For
Principles of Macroeconomics
ISBN: 978-0134078809
12th edition
Authors: Karl E. Case, Ray C. Fair, Sharon E. Oster
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