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How Monetary Policy affects CPI, Inflation & Interest Rates

How does a change in monetary policy on the part of the Fed impact nominal interest rates, the consumer price index, and inflation rates? How are the current real stock of money in the US and real interest rates computed?

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Expansionary monetary policy is designed to increase the money supply. This increases the supply of loanable funds and causes interest rates to fall. It also decreases the value of each individual dollar, ...

Solution Summary

A description of monetary policy and an explanation of how the Federal Reserve uses it to control the price level, inflation, and interest rates. Also includes information on how the money supply and real interest rates are calculated.