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11 Feb 2018
As we observed in this chapter, central banks, rather than purposefully setting the level of the money supply, usually set a target level for a short-term interest rate by standing ready to lend or borrow whatever money people wish to hold at that interest rate. (When people need more money for a reason other than a change in the interest rate, the money supply therefore expands, and it contracts when they wish to hold less.)
Does the situation change if the central bank raises the interest rate when prices are high, according to a formula such as R - R0 = a(P - P0), where a is a positive constant and P0 a target price level?
As we observed in this chapter, central banks, rather than purposefully setting the level of the money supply, usually set a target level for a short-term interest rate by standing ready to lend or borrow whatever money people wish to hold at that interest rate. (When people need more money for a reason other than a change in the interest rate, the money supply therefore expands, and it contracts when they wish to hold less.)
Does the situation change if the central bank raises the interest rate when prices are high, according to a formula such as R - R0 = a(P - P0), where a is a positive constant and P0 a target price level?
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glorysoft2Lv10
2 Oct 2022
Jamar FerryLv2
12 Feb 2018
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