Interest rates promotes financial market stability

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Reference no: EM131387184

Discuss the validity and, where appropriate, the invalidity of each of the following statements, using examples to support your claims.

1. A monetary policy that aims to minimize fluctuations in interest rates promotes financial market stability and thus helps to stabilize aggregate economic activity.

2. Money supply can be pro-cyclical even when monetary policy is not. [HINT: Consider how the money multiplier changes with interest rates.]

Reference no: EM131387184

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