GDP increases. Assuming the population does not become more efficient in using liquidity for transactions, what will happen to (short-term) interest rates?

a) they will rise only if the central bank withdraws liquidity
b) they will fall only if the central bank withdraws liquidity
c) they will rise if the central bank takes no action with respect to liquidity provision
d) they will fall if the central bank takes no action with respect to liquidity provision
e) they will rise if the central bank adds liquidity

Ans: c) they will rise if the central bank takes no action with respect to liquidity provision

Business

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