M1 money growth in the U.S. was about 16% in 2008. 7% in 2009. and 9% in 2010. O

Question

M1 money growth in the U.S. was about 16% in 2008. 7% in 2009. and 9% in 2010. Over the same time period, the yield on 3-month Treasury bills fell from almost 3% to close to 0%. Given these high rates of money growth, why did interest rates fall, rather than increase? A. The income, price-level, and expected-inflation effects were small relative to the liquidity effect. B. The liquidity effect did not dominate the other effects as the liquidity preference framework would suggest. c. The liquidity effect was working in the same direction as the income, price-level, and expected inflation effects. D. The income, price-level, and expected-inflation effects were large relative to the liquidity effect.

Explanation / Answer

D

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