The Financial Effects Of Monetary Policy On Interest Rates
Beginning of paper
In summary of Michael Darby’s article involving , three specific effects emerge as the most influential. Darby suggests that an increase in the rate of growth of the money supply leads to a pattern of changes in the interest rate that reflects the interaction of the liquidity, income, and expec ....
Middle of paper
.... of which display temporal patterns” (Darby1975).
Theory
Darby’s empirical argument is that the growth path of income and price level are not affected immediately after a change in money supply growth and that the nominal interest rate must fall over time to restore equality of money supply and demand. The immediate impact of monetary policy on the interest rate is known as the liquidity effect. However, over time “aggregate demand for goods is increased both by direct impacts of th ....
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Word count: 1334
Page count: 5 (approximately 250 words per page)
