In the Simple Liquidity Preference Model, If the Money Demand

question 20

Multiple Choice

In the simple liquidity preference model, if the money demand curve is elastic, then:

• A) small changes to the money supply will cause large changes to the interest rate.
• B) only large changes to the money supply will cause large changes to the interest rate.
• C) small changes to the money supply will cause insignificant changes to the interest rate.
• D) even large changes to the money supply will cause small changes to the interest rate.

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Definitions:

Pair of Equations

Two equations that are considered together, often used to find the solution to a set of variables in math.

Three Figure Accuracy

Refers to rounding calculations to three significant digits.

Pair of Equations

Two mathematical statements set equal to each other, used to find the value of variables.

Unknown Variable

A symbol in mathematics and algebra that represents a number not yet identified but can be solved for in an equation.