According to Liquidity Preference Theory,the Slope of the Money Demand

question 65

Multiple Choice

According to liquidity preference theory,the slope of the money demand curve is explained as follows:

• A)Interest rates rise as the Fed reduces the quantity of money demanded.
• B)Interest rates fall as the Fed reduces the supply of money.
• C)People will want to hold less money as the cost of holding it falls.
• D)People will want to hold more money as the cost of holding it falls.

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Definitions:

Flexible Short-term Policy

A financial strategy that allows for maintaining a higher level of current assets, providing a buffer against unforeseen liabilities or expenses.

Restrictive Short-term Policy

A financial policy aimed at minimizing the amount of working capital to reduce short-term financing costs, often at the risk of running low on liquidity.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business, whichever is longer.

Cash Flow Time Line

A visual representation that maps out all cash inflows and outflows of a project or investment over time.