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.

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Definitions:

Measuring

The process of determining the size, amount, or degree of something through the use of instruments or standardized tests.

Psychological Theory

A framework designed to explain and predict mental processes and behaviors.

Independent Variables

Factors that are manipulated by researchers to observe their effect on dependent variables in experiments.

Dependent Variables

In experimental research, the variable that is being measured or tested, and is expected to change as a result of manipulations to the independent variable.