... in the money supply and a rise in the interest rate The duration of the impact of the action on the interest rate depends on the degree of nominal stickiness The higher the nominal inertia, the ... fluctuations at least in the short run The effects on real output should die out gradually in the medium run Furthermore, for the theoretical validity of the model the role of the productivity shocks ... so contract the money supply to dampen the effects of these pressures Furthermore, the phenomenon that the interest rate increases accompanying a rise in the money supply, known as the liquidity...