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Neb Farlie Saint-Cyr
on Nov 16, 2024

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According to the liquidity preference theory, an increase in the overall price level of 10 percent

A) increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.
B) decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded.
C) increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.
D) decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.

Liquidity Preference Theory

A theory which suggests that people prefer to hold their wealth in liquid form for immediate use rather than in longer-term investments, affecting interest rates and economic activity.

Overall Price Level

A comprehensive measure reflecting the general prices of goods and services in an economy at a given time, similar to the average cost of living.

  • Elucidate the rationale behind the liquidity preference theory and its impact on total demand.
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Kulwinderjit SinghNov 18, 2024
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