Interest rates to rise when nominal money supply is fixed

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a. The president of the United States announces in press conferences in a press conference that he will fight the higher inflation rate with a new anti-inflation program. Predict what will happen to interest rates if the public believe him.

b. Why should a rise in the price level (but not in expected inflation) cause interest rates to rise when the nominal money supply is fixed?

c. Predict what will happen to interest rates if the public suddenly expects a large decrease in stock prices.

Reference no: EM13837287

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