According to Liquidity Preference Theory, an Increase in Money Demand

question 202

Multiple Choice

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

• A)the interest rate to fall, so aggregate demand shifts right.
• B)the interest rate to fall, so aggregate demand shifts left.
• C)the interest rate to rise, so aggregate demand shifts right.
• D)the interest rate to rise, so aggregate demand shifts left.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, demonstrating the goods' sensitivity to price changes.

Quantity

The amount or number of a material or immaterial good considered as a unit or total.

Perfectly Inelastic

Describing demand that is entirely unresponsive to price changes, represented by a vertical demand curve.

Oysters

Marine mollusks known for their hard shells and edible flesh, often considered a delicacy.