According to Liquidity-Preference Theory, If the Price Level Increases, in Which

question 106

Multiple Choice

According to liquidity-preference theory, if the price level increases, in which direction does the demand curve shift, and how does the interest rate change?

• A) The demand curve shifts right, so the interest rate increases.
• B) The demand curve shifts right, so the interest rate decreases.
• C) The demand curve shifts left, so the interest rate decreases.
• D) The demand curve shifts left, so the interest rate increases.

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Definitions:

Spot Price

The current market price at which an asset can be bought or sold for immediate delivery.

Canadian Dollars

The currency of Canada, symbolized as CAD, and used throughout the country.

Exchange Rate

In international finance, the rate at which one currency can be traded for another. Spot rates are available for current trades. Forward rates are available for currency to be delivered in a specified period of time.

Spot Exchange Rate

The current exchange rate at which a foreign currency can be bought or sold for immediate delivery.