The above figure shows how interest rates respond over time to an increased rate of money supply
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The above figure shows how interest rates respond over time to an increased rate of money supply growth. Answer the following questions:
(a) Apart from the liquidity effect, which other effects also happen as a result of an increase in money supply?
(b) In the above figure, is the liquidity effect larger than the other effects?
(2 marks) (2 marks)
(c) Explain your answer in (b) by describing how money demand or supply moves after each effect. Use a money demand and supply graph in your answer.
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