The Liquidity Effect Is the

question 31

Multiple Choice

The liquidity effect is the

• A) decrease in the interest rate due to an increase in the supply of loanable funds.
• B) increase in the interest rate due to an increase in national income.
• C) increase in the interest rate due to a higher expected inflation rate.
• D) increase in the interest rate due to an increase in the price level.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowing money, typically expressed as an annual rate applied to the borrowed principal.

Tax Rate

The percentage of income or value of a transaction that is paid to the government as tax.

Retention Ratio

A metric that shows the percentage of net income retained in the company rather than paid out as dividends to shareholders.

Debt-Equity Ratio

The quotient representing a company's use of debt over equity, obtained by dividing its liabilities total by shareholder equity.