According to Liquidity-Preference Theory, in Which Circumstance Would the Money-Supply

question 26

Multiple Choice

According to liquidity-preference theory, in which circumstance would the money-supply curve shift left?

• A) if government spending decreased
• B) only if the Bank of Canada chose to decrease the money supply
• C) if the interest rate increased
• D) if the price level increased

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Definitions:

Commercial Bank Loans

are loans that businesses and individuals can obtain from a commercial bank to finance various needs, such as business expansion or personal expenses.

Short-Term Financing

Refers to borrowing funds for a period of less than one year to meet immediate financial requirements.

Spontaneous Financing

Financing that naturally increases as a firm's operating levels increase, typically through trade credits and accruals.

Five Year Bonds

Debt securities issued with a maturity of five years, typically paying interest semi-annually.