The Theory of Liquidity Preference States That, Other Things Being

question 61

Multiple Choice

The theory of liquidity preference states that, other things being equal, an increase in the real money supply will:

• A)lower the interest rate.
• B)raise the interest rate.
• C)have no effect on the interest rate.
• D)first lower and then raise the interest rate.

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Definitions:

Perpetual Existence

A corporate structure characteristic where a company continues indefinitely, unless dissolved, regardless of changes in ownership or management.

Implied Duration

Estimated time that represents how long it takes for the price of a fixed-income investment to be repaid by its internal cash flows.

Business Trust

A legal arrangement where assets are managed by trustees for the benefit of the trust's beneficiaries, often used in business for tax and estate planning.

Assets

Resources owned or controlled by a business, individual, or entity which have value and can be used to meet debts, commitments, or legacies.