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-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate.If the money supply is at MS₁ and the Bank of Canada conducts expansionary monetary policy,in the short run the interest rate drops to i₂.In the long run,the demand for money will _____,and the interest rate will_____.

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-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate.If the money supply is at MS₁ and the Bank of Canada conducts expansionary monetary policy,in the short run the interest rate drops to i₂.In the long run,the demand for money will _____,and the interest rate will_____.

Quizplus · Accepted Answer

In the long run, expansionary monetary policy can lead to higher price levels, increasing the demand for money, which can cause the interest rate to rise back to its original level, i₁.

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