Using liquidity preference theory, explain how you would expect the demand for money and the equilibrium rate of interest to be affected by: (a) a growing anxiety that security prices might be about...

Using liquidity preference theory, explain how you would expect the demand for money and the equilibrium rate of interest to be affected by:

(a) a growing anxiety that security prices might be about to fall; (b) a growing belief that the central bank is about to tighten monetary policy?

1. Explain what central banks can do to prevent a rise in interest rates. What limits the central bank’s ability to do this?

2. Using the financial press and/or official publications give a brief outline of the current policy on interest rates.