On the Graph That Depicts the Theory of Liquidity Preference

question 113

Multiple Choice

On the graph that depicts the theory of liquidity preference,

• A)the demand-for-money curve is vertical.
• B)the supply-of-money curve is vertical.
• C)the interest rate is measured along the horizontal axis.
• D)the price level is measured along the vertical axis.

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Definitions:

T-Bills

Short-term government securities issued at a discount from the face value and maturing at par, typically used as a low-risk investment.

Money Market

A financial market for debt securities with maturities of less than 1 year (short term). The New York money market is the world’s largest.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental.

Secondary Market

The financial market where investors buy and sell securities they already own, as opposed to the primary market where securities are first issued.