Assume the Money Market Is Initially in Equilibrium

question 36

Multiple Choice

Assume the money market is initially in equilibrium. If the price level increases, according to liquidity-preference theory, what is in excess and for how long?

• A) The supply of money is in excess until the interest rate increases.
• B) The supply of money is in excess until the interest rate decreases.
• C) The demand for money is in excess until the interest rate increases.
• D) The demand for money is in excess until the interest rate decreases.

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Definitions:

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A situation or relationship in which all parties involved gain or benefit from the arrangement.

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An effect or influence that is considerable and has the potential to cause noticeable changes or outcomes.

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