Question
The effectiveness of monetary policy depends on how easy it is
for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment
spending and the aggregate demand curve. The economies of
Albernia and Brittania have very different money demand
curves, as shown in the accompanying diagram. In which
economy will changes in the money supply be a more effective policy tool? Why?
for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment
spending and the aggregate demand curve. The economies of
Albernia and Brittania have very different money demand
curves, as shown in the accompanying diagram. In which
economy will changes in the money supply be a more effective policy tool? Why?