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Question 64

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Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate Use the following to answer questions: Figure: Short-Run Determination of the Interest Rate -(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS<sub>1</sub> and the Fed conducts expansionary monetary policy, in the short run the interest rate drops to r<sub>2</sub>. In the long run the demand for money will _____, and the interest rate will_____. A) increase; increase to r<sub>1</sub> B) increase; remain at r<sub>2</sub> C) decrease; decrease below r<sub>2</sub> D) decrease; remain at r<sub>2</sub>
-(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the Fed conducts expansionary monetary policy, in the short run the interest rate drops to r2. In the long run the demand for money will _____, and the interest rate will_____.


A) increase; increase to r1
B) increase; remain at r2
C) decrease; decrease below r2
D) decrease; remain at r2

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