Uruguay Lifts Key Rate to 5% With Inflation Above Target With the pandemic easing and inflation above its target range, the central bank has started to raise its key interest rate.

a. When the central bank raises its key interest rate, what are the effects on Uruguay’s economy through the next days, weeks, and months?

b. When the central bank raises its key interest rate, what is the effect on aggregate demand and when does this effect occur? Explain.

c. Given the rise in Uruguay’s key rate in August 2021, when do you anticipate a change in the inflation rate, other things remaining the same?