According to Liquidity-Preference Theory, Why Is the Money-Demand Curve Downward

question 76

Multiple Choice

According to liquidity-preference theory, why is the money-demand curve downward sloping?

• A) because interest rates rise as the Bank of Canada reduces the quantity of money demanded
• B) because interest rates fall as the Bank of Canada reduces the supply of money
• C) because people will want to hold less money as the cost of doing so falls
• D) because people will want to hold more money as the cost of doing so falls

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Definitions:

Classified Balance Sheet

A balance sheet that groups together similar items under the headings of assets, liabilities, and equity to enhance the understanding of a company's financial position.

Current Assets

Resources anticipated to be transformed into cash, sold, or used up within a year or throughout the usual operational cycle of the company.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

Net Purchases

The total amount spent on purchases of goods for resale after subtracting any purchase returns, allowances, and discounts.