According to Liquidity Preference Theory, an Increase in Money Demand

question 202

Multiple Choice

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

• A)the interest rate to fall, so aggregate demand shifts right.
• B)the interest rate to fall, so aggregate demand shifts left.
• C)the interest rate to rise, so aggregate demand shifts right.
• D)the interest rate to rise, so aggregate demand shifts left.

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Definitions:

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to shareholders, often reinvested in the business.

Dividend Restrictions

Limitations or rules imposed on a corporation's ability to pay dividends to shareholders, often due to legal, contractual, or financial conditions.

Public Corporations

Companies that have issued securities through an initial public offering (IPO) and are traded on at least one stock exchange or in over-the-counter markets.

Domestic Corporations

Companies that are registered and operate within the legal boundaries of a country, subject to its governance and taxation.