According to Liquidity Preference Theory, When Would the Money Supply

question 102

Multiple Choice

According to liquidity preference theory, when would the money supply curve shift right?

• A)if the money demand curve shifted right
• B)only if the Bank of Canada chose to increase the money supply
• C)if the interest rate increased
• D)if the price level fell or the interest rate decreased

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Definitions:

Effective Rate

The actual rate of interest earned or paid on an investment, loan, or other financial product, taking into account the effects of compounding.

Bond Prices

Bond prices are the market value of bonds, which fluctuate based on interest rates, the bond's credit rating, and other factors.

Market Interest Rate

The prevailing rate of interest available in the marketplace on debts of similar risk and maturity.

Contractual Interest Rate

The interest rate explicitly stated in a loan agreement or bond indenture that the borrower must pay to the lender.