An economic research paper demonstrates that when the money supply rises, the in

Question

An economic research paper demonstrates that when the money supply rises, the interest rate falls immediately, but then rises over longer periods. The research paper cited above implies which of the following? A. The income effect dominates in the short term, while the price level effect dominates over the long term. B. The price level effect dominates in the short term, while the expected inflation rate effect dominates over the long term. C. The expected inflation rate effect dominates in the short term, while the liquidity effect dominates over the long term. D. The liquidity effect dominates in the short term, while the income, the price level, and the expected inflation rate effects dominate over the long term.

Explanation / Answer

D. The liquidity effect dominates in the short term, while the income, the price level, and the expected inflation rate effects dominate over the long term.

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