According to Liquidity-Preference Theory, How Does a Decrease in the Price

question 115

Multiple Choice

According to liquidity-preference theory, how does a decrease in the price level affect the interest rate and output demanded, respectively?

• A) The interest rate increases, and output demanded increases.
• B) The interest rate increases, and output demanded decreases.
• C) The interest rate decreases, and output demanded increases.
• D) The interest rate decreases, and output demanded decreases.

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Definitions:

Pollution

The contamination of the natural environment, causing adverse effects on living beings and ecosystems.

Negative Externality

A cost imposed on third parties not involved in a transaction or activity, such as pollution from a factory affecting nearby residents’ health.

Second-Hand Smoke

The smoke inhaled involuntarily from tobacco being smoked by others, posing health risks to non-smokers.

Unemployment

The situation where individuals who are able and willing to work are not able to find employment.