monetary policy must work, if at all, by reducing the aggregate demand for goods. Its handle for accomplishing this is a higher interest rate and a diminished supply of funds for lending. By thus discouraging lending by banks and borrowing by consumers and producers, the policy is presumed to restrict or restrain what the latter have to spend. The reduction in this spending, if it occurs, will then have secondary (or multiplier) effects on the spending of others. The ultimate consequence is to reduce the demand for goods as a whole or to restrain the rate of increase in demand.1 By thus
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