D. Empirical studies of the liquidity effect have been more problematic. Distinguishing cause, effect, and correlation is difficult, and your answer often depends on your procedure for solving the problem. Policies are frequently endogenous responses to circumstances. G. Formal econometric tests frequently fail to detect a liquidity effect unless they assume it. They find that if you control for past interest rates, money growth, prices, and output, then the impact of money on interest rates is positive .
Econometric tests have more trouble coping with policy endogeneity than the narrative studies do.
Again, probably due to endogeneity. The standard ISLM mechanism. More expansionary monetary policy's short-run effect given nominal rigidities is to reduce real rates. Nominal rates definitely fall, and if expected inflation rises, this means real rates fall more than nominal rates. Investment, consumer durables, and other interest-sensitive spending increases as a result.