-The Figure Above Illustrates the Effect of an Increased Rate

Multiple Choice

-The figure above illustrates the effect of an increased rate of money supply growth at time period T₀. From the figure, one can conclude that the ________.

A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation
B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation
C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation