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:

Exchange

The act of trading goods, services, currencies, or other items of value between parties.

Comparative Advantage

The ability of an individual or country to produce a good or service at a lower opportunity cost than competitors.

Production Possibilities Curve

A graph that shows the combinations of two goods that an economy can produce using all its resources efficiently.

Comparative Advantage

The capacity of a party to produce products or services with a lesser opportunity cost compared to others.