When Comparing the Loanable Funds and Liquidity Preference Frameworks of Interest

question 38

Multiple Choice

When comparing the loanable funds and liquidity preference frameworks of interest rate determination,which of the following is true?

• A) The liquidity preference framework is easier to use when analyzing the effects of changes in expected inflation.
• B) The loanable funds framework provides a simpler analysis of the effects of changes in income, the price level, and the supply of money.
• C) In most instances, the two approaches to interest rate determination yield the same predictions.
• D) All of the above are true.
• E) Only A and B of the above are true.

---

Definitions:

Eruption Column

A cloud of hot volcanic ash and gas ejected into the atmosphere during an explosive volcanic eruption.

Viscous Lava

Lava that is thick and slow-moving due to its high silica content.

Volcanic Ash

Fine particles of rock and volcanic glass created during explosive volcanic eruptions.

Volcanic Domes

Rounded, mound-shaped landforms created by slow-moving lava that solidifies near the Earth's surface.