The Theory of Liquidity Preference Assumes That the Nominal Supply

question 21

Multiple Choice

The theory of liquidity preference assumes that the nominal supply of money is determined by the

• A)level of real output only.
• B)interest rate only.
• C)level of real output and by the interest rate.
• D)Federal Reserve.

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Definitions:

Discounted

Reduced in price or reflecting the present value of future cash flows when taking into account the time value of money.

Present Value

The value today of a future amount of money or series of payments, adjusted for a specific return rate.

Discounted

The process of determining the present value of a payment or stream of payments that will be received in the future.

Present Value

The current value of a future amount of money or stream of cash flows, given a specified rate of return.