Keynes's Liquidity Preference Theory Indicates That the Demand for Money

question 43

Multiple Choice

Keynes's liquidity preference theory indicates that the demand for money

• A)is purely a function of income,and interest rates have no effect on the demand for money.
• B)is purely a function of interest rates,and income has no effect on the demand for money.
• C)is a function of both income and interest rates.
• D)is a function of both government spending and income.

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Definitions:

Fair Market Value

The cost at which a financial asset is exchanged between a ready buyer and a ready seller, where neither party is obligated to proceed with the transaction and both parties are well-informed of all pertinent information.

Noncurrent Assets

Long-term resources owned by a company, which are not expected to be converted into cash or used up within one year or the operational cycle, whichever is longer.

Liabilities

Financial obligations or debts owed by a business to others, that must be paid in the future.