Liquidity Preference Theory Is Most Relevant to the

question 60

Multiple Choice

Liquidity preference theory is most relevant to the

• A)short run and supposes that the price level adjusts to bring money supply and money demand into balance.
• B)short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
• C)long run and supposes that the price level adjusts to bring money supply and money demand into balance.
• D)long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Internal Rate

Often refers to the internal rate of return (IRR), which is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Net Present Value

A financial metric used to evaluate the profitability of an investment, accounting for its time value of money.

Capital Budgeting

The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product.