2. According to the liquidity preference model of the interest rate, the interest rate is determined in

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2. According to the liquidity preference model of the interest rate, the interest rate is determined in the money market by the money demand curve and the money supply curve. The Federal Reserve can change the interest rate in the short run by shifting the money supply curve.

In practice, the Fed uses open - market operations to achieve a target federal funds rate, which other shortterm interest rates generally track.

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Essentials Of Economics

ISBN: 9781429218290

2nd Edition

Authors: Paul Krugman, Robin Wells, Kathryn Graddy

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