According to Keynes, increasing the money supply should lower interest rates in the

economy. Milton Friedman notes that while it is true that expansionary monetary policy

can lower interest rates, it is only part of the story

a. Briefly explain under what conditions an expansionary monetary policy will

indeed lower interest rates, both in the short and long run. A graph may help

answering this question.

b. Briefly explain under what conditions an expansionary monetary policy will

increase interest rates. A graph may help answering this question