According to Liquidity-Preference Theory, Why Is the Money-Demand Curve Downward

question 76

Multiple Choice

According to liquidity-preference theory, why is the money-demand curve downward sloping?

• A) because interest rates rise as the Bank of Canada reduces the quantity of money demanded
• B) because interest rates fall as the Bank of Canada reduces the supply of money
• C) because people will want to hold less money as the cost of doing so falls
• D) because people will want to hold more money as the cost of doing so falls

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Definitions:

Market Supply Curve

A graphical representation showing the relationship between the price of a good and the total output of that good supplied by all producers in the market.

Identical Firms

Refers to companies within the same industry that have similar methods of production, costs, and characteristics, making their products essentially indistinguishable.

Linear Marginal Cost

A situation where the cost of producing one additional unit of a product or service remains constant, represented graphically as a straight line.

Competitive Market

A market structure characterized by a large number of buyers and sellers, none of whom can control the market price.