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What happens to pricesif the central bank does not respond

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An economy begins in long-run equilibrium, and then a change in government regulations allows banks to start paying interest on checking accounts. Recall that the money stock (demand for money) is thesum of currency and including checking accounts, so this regulatory changemakes holding money more attractive.

Discussion a. How does this change affect the demand for money?

Discussion b. What happens to the pricesif the Central Bank does not respond?

Discussion c. Draw a graph showing the effect on prices.

Reference no: EM132879038

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