According to much popular economic thinking, there are three factors determining the market interest rates. The first is liquidity, the second factor is economic activity, and the third factor is inflationary expectations. Milton Friedman held that whenever the central bank raises the growth rate in money supply by buying financial assets such as Treasuries this pushes the prices of Treasuries higher and its yields lower. Note that what we have here is the monetary liquidity effect, which is inversely correlated with interest rates. After a time lag, maintains Friedman, the increase in the