Liquidity-Preference Framework

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M6 Individual Assignment(s)

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Q. What is the relationship between a country’s savings, its government budget deficit, its domestic investment in physical capital, and its foreign investment?

M7 Individual Assignment(s)

Select any two (2) of the following questions to answer, then click on the Compose Written Assignment button below and follow the instructions you find there. As you develop your essa, remember to include not only text materials but also contemporary materials as well. These can come from various sources and can reflect domestic and/or global concerns.
1. Suppose that the liquidity effect is small, people monitor changes in the money supply carefully, and prices and inflation expectations adjust rapidly.  In this situation, describe the movement of the nominal interest rate when there is a permanent decline in the growth rate of the money supply?

2. In the liquidity-preference framework, suppose that the Fed changes the money supply to keep the nominal interest rate unchanged whenever the demand for money shifts. Describe what happens to the quantity of money and the nominal interest rate if the money-demand curve shifts to the right.

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