According to the Liquidity-Preference Theory, How Does an Increase in the Price

question 60

Multiple Choice

According to the liquidity-preference theory, how does an increase in the price level affect the interest rate?

• A) It increases the money demand and the interest rate.
• B) It lowers the money demand and the interest rate.
• C) It increases the money demand and lowers the interest rate.
• D) It lowers the money demand and increases the interest rate.

Analyze how shifts and pivots in the budget constraint represent economic phenomena such as income changes, price changes, and substitution effects.

Calculate the effects of price and income changes on the quantity of goods consumed.

Distinguish between shifts and pivots of the budget constraint to represent different economic scenarios.

Explain the concept of opportunity cost in the context of budget constraints and consumer choice.

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Definitions:

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively management is using a company’s assets to create profits.

Net Income

The final income of a business once expenses and taxes are removed from the total revenue.

Invested Capital

Total capital invested in a company by its shareholders and debt holders, used for calculating returns generated by a company.

Assets

Assets represent resources owned or controlled by a business or individual that are expected to produce economic value or benefit in the future.