Macroeconomics 5th Edition by Olivier Blanchard

Exercise 4

Money growth and the yield curve.
In Chapter 14, we examined the effects of an increase in the growth rate of money on interest rates and inflation.
a. Draw the path of the nominal interest rate following an increase in the growth rate of money. Suppose that the lowest point in the path is reached after one year and that the long-run values are achieved after three years.
b. Show the yield curve just after the increase in the growth rate of money, one year later, and three years later.