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Suppose the Fed eases monetary policy and, as a result, market participants increase their long-run inflation expectations. Based on the Friedman effect combined with the
Suppose the Fed eases monetary policy and, as a result, market participants increase their long-run inflation expectations. Based on the Friedman effect combined with the pure expectations hypothesis regarding the term structure, one would expect to see short-term rates ________ long-term rates.
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A. increase more than
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B. increase the same amount as
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C. decrease less than
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D. decrease the same amount as
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E. decrease more than
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