With the Real Money Supply Held Constant, the Theory of Liquidity

question 24

Multiple Choice

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

• A) no change in the interest rate.
• B) a lower interest rate.
• C) a higher interest rate.
• D) first a lower and then a higher interest rate.

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Definitions:

Cognitive Dissonance

A state of mental discomfort arising from holding two or more conflicting beliefs, values, or attitudes.

Confrontation

A direct encounter between parties or individuals, where conflicts or disagreements are addressed head-on.

Decrease

A reduction in size, quantity, or intensity of something.

Self-Fulfilling Prophecy

A prediction that directly or indirectly causes itself to become true, due to positive feedback between belief and behavior.