Discuss the significance and meaning of quantitative easing in the context of the liquidity preference model (increase in the quantity of money supplied). Provide specific examples to support your response.
Create a realistic scenario that illustrates the aggregate-demand / aggregate-supply model. In your scenario, you should identify changes in specific variables that cause each curve to shift.
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Quantitative easing (QE) is a monetary policy used by central bank to stimulate the economy when standard monetary policy has become ineffective.
ln the liquidity-preference model, an increase in the money supply causes a decline in the nominal
interest rate; a decline in the money supply causes an increase in the nominal interest rate.
Nominal demand for money is proportional to the prices of goods and services; real demand for
money depends positively on real income and negatively on the nominal interest rate.
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Nov 16th, 2015
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