Over What Period of Time Is the Liquidity-Preference Theory Most

question 54

Multiple Choice

Over what period of time is the liquidity-preference theory most relevant, and what does it suppose?

• A) short run; it supposes that the price level adjusts to bring money supply and money demand into balance
• B) short run; it supposes that the interest rate adjusts to bring money supply and money demand into balance
• C) long run; it supposes that the price level adjusts to bring money supply and money demand into balance
• D) long run; it supposes that the interest rate adjusts to bring money supply and money demand into balance

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Definitions:

Interest Calculations

The process of determining the amount of interest earned or paid on investments, loans, or savings over a period of time.

Bonds Purchased

Bonds purchased refer to the acquisition of bond securities by an investor, representing loans to the issuer in return for periodic interest payments and the return of principal at maturity.

Accrued Interest

Interest that has been incurred but not yet paid, representing a liability for the borrower and an asset for the lender.

Semiannual Interest Payments

Interest payments made twice a year on a loan or bond.