Topic 4: Interest Rate Determination Flashcards Preview

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Flashcards in Topic 4: Interest Rate Determination Deck (68)
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61

Fisher effect,

When expected inflation rises, interest rates will rise.

62

In Keynes's liquidity preference analysis, two factors cause the demand curve for money to shift:

income and the price level.

63

Income Effect

higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the right

64

Price-Level Effect

a rise in the price level causes the demand for money
at each interest rate to increase and the demand curve to shift to the right.

65

an increase in the money supply engineered by the Federal Reserve will shift

the supply curve for money to the right.

66

when income is rising during a business cycle expansion (holding other economic variables constant)

interest rates will rise.

67

when the price level increases, with the supply of money and other economic variables held constant,

interest rates will rise

68

When the money supply increases (everything else remaining equal),

interest rates will decline