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Suppose that consumption depends on the level of real money balances (on the grounds that real money balances are part of wealth). Show that if real money balances depend on the nominal interest rate, then an increase in the rate of money growth affects consumption, investment, and the real interest rate. Does the nominal interest rate adjust more than one-for-one or less than one for one to expected inflation?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9466823

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