In Liquidity-Preference Theory, an Increase in the Interest Rate Decreases

question 118

True/False

In liquidity-preference theory, an increase in the interest rate decreases the quantity of money demanded, but does not shift the money-demand curve.

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Definitions:

Marginal Product

The additional output that is produced by adding one more unit of a particular input, while holding other inputs constant.

Wage Rate

The amount of money paid to an employee per unit of time or output, commonly expressed as an hourly rate.

Diminishing Marginal Product

The property whereby the marginal product of an input declines as the quantity of the input increases.

Production Function

An equation that describes the relationship between the inputs a firm uses and the output it produces.