According to Liquidity-Preference Theory, Why Is the Money-Demand Curve Downward

question 76

Multiple Choice

According to liquidity-preference theory, why is the money-demand curve downward sloping?

• A) because interest rates rise as the Bank of Canada reduces the quantity of money demanded
• B) because interest rates fall as the Bank of Canada reduces the supply of money
• C) because people will want to hold less money as the cost of doing so falls
• D) because people will want to hold more money as the cost of doing so falls

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Definitions:

Current Liabilities

Short-term financial obligations due within one year or within the normal operating cycle of the business.

Total Debt Ratio

A financial metric that compares the total liabilities of a company to its total assets, indicating how much of the company's assets are financed by debt.

Total Equity

The total net worth of a company as calculated by subtracting total liabilities from total assets, representing the owners' stake in the company.

Times Interest Earned Ratio

A metric used to measure a company's ability to meet its interest payments, calculated as earnings before interest and taxes divided by interest expense.