If the liquidity effect is smaller than the other effects,and the adjustment to expected inflation is slow,then the
A)interest rate will fall.
B)interest rate will rise.
C)interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth.
D)interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.

Question

Quizplus · Accepted Answer

If the liquidity effect is small, it means that changes in the money supply will have a smaller impact on interest rates. However, if the adjustment to expected inflation is slow, it will eventually catch up, causing interest rates to initially fall but eventually climb above the initial level in response to an increase in money growth.

If the Liquidity Effect Is Smaller Than the Other Effects,and