According to Liquidity-Preference Theory, If the Price Level Increases, in Which

question 106

Multiple Choice

According to liquidity-preference theory, if the price level increases, in which direction does the demand curve shift, and how does the interest rate change?

• A) The demand curve shifts right, so the interest rate increases.
• B) The demand curve shifts right, so the interest rate decreases.
• C) The demand curve shifts left, so the interest rate decreases.
• D) The demand curve shifts left, so the interest rate increases.

---

Definitions:

Net Present Value

The contrast between the present-valued cash inflows and outflows over a determined period.

Working Capital

The gap between a business's current assets versus its current liabilities, reflecting its short-term solvency and efficiency in operations.

Investment Project

An endeavor in which resources are invested with the goal of generating future returns, typically involving financial, time, or other forms of resources.

End of Project

The point in time when all objectives of a project have been achieved and all deliverables have been completed.