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Give a brief description of the transmission mechanism
1. When the central bank target rate increases, other interest rates in the economy will increase (and the money supply will decrease, but that is not important here).
2. With higher interest rates, it is more expensive to borrow and more advantageous to save. Therefore, consumption and investment will decrease (we say that the central bank "cools off" the economy).
3. As consumption and investment fall, GDP is reduced and unemployment will rise. This will cause inflation and the growth rate in wages to fall.
Assume that the money demand function is (M/P) d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is2. If the price level
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A biologist working in the Outback of Australia is studying the effects of land-use by tourists (campers, fishers, etc.) on vegetation cover in a river gorge of the outback. There
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Price Mechanism Price mechanism is the point, which equilibrates supply and demand within a market. It is a mechanism of pricing. The price mechanism is one, which permits the p
Relate Overnight interest rates targets with money supply There are many ways to explain the important connection between the overnight interest rate target and the money suppl
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assumptions of opportunity cost
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