According to Liquidity-Preference Theory, If the Quantity of Money Supplied

question 2

Multiple Choice

According to liquidity-preference theory, if the quantity of money supplied is greater than the quantity demanded, what will happen to the interest rate and the quantity of money demanded?

• A) The interest rate will increase, and the quantity of money demanded will decrease.
• B) The interest rate will increase, and the quantity of money demanded will increase.
• C) The interest rate will decrease, and the quantity of money demanded will decrease.
• D) The interest rate will decrease, and the quantity of money demanded will increase.

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Definitions:

Earnings Yield

The inverse of the price-to-earnings ratio, representing the earnings per share divided by the price per share.

P/E Ratio

The price-to-earnings ratio compares a company's share price to its earnings per share, indicating how much investors are willing to pay per dollar of earnings.

Dividend Payout Ratio

The fraction of net income a firm pays out to its shareholders in dividends, typically expressed as a percentage.

Interest Burden

Relates to the impact of interest expenses on a company's net income, indicating the portion of profits consumed by interest obligations.