According to the Theory of Liquidity Preference,a Decrease in the Price

question 73

Multiple Choice

According to the theory of liquidity preference,a decrease in the price level causes the

• A)interest rate and investment to rise.
• B)interest rate and investment to fall.
• C)interest rate to rise and investment to fall.
• D)interest rate to fall and investment to rise.

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Definitions:

Market Price

The prevailing selling or buying price of a service or asset in the market.

Break-Even Price

The price at which total revenues equal total costs, and the business or investor neither makes a profit nor incurs a loss.

Put

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.

Premium

The amount paid for an insurance policy or an amount paid above the nominal value for a security; also, the fees paid for an option contract.