The ________ represents the initial reaction of the interest rate to a change in the money supply.

Question

Quizplus · Accepted Answer

The liquidity effect suggests that an increase in the money supply will lead to a decrease in interest rates, as there is now more money available in the market. This is the initial reaction, and it is referred to as the liquidity effect because it reflects the change in the supply and demand for money.

The ________ Represents the Initial Reaction of the Interest Rate