Pegging interest rates, Pegging Interest Rates. Suppose the

Pegging interest rates

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Pegging Interest Rates. Suppose the Federal Reserve wanted to fix, or “peg,” the level of interest rates at 6 percent per year. Using a simple demand- and -supply graph, show how increases in money demand would change the supply of money if the Federal Reserve pursued the policy of this fixed interest rate. Use your answer to explain this statement: If the Federal Reserve pegs interest rates, it loses control of the money supply.

Reference no: EM13977050

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