According to liquidity preference theory, a decrease in money demand for some reason other than a...

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

A. the interest rate to fall, so aggregate demand shifts right.

B. the interest rate to fall, so aggregate demand shifts left.

C. the interest rate to rise, so aggregate demand shifts right.

D. the interest rate to rise, so aggregate demand shifts left.

Solutions

Expert Solution

If demand for money falls ,it means demand for other interest bearing assets rises, it lead to fall in interest rates.

Fall in interest rate leads to rise in investment, It leads to rightward shift of aggregate demand curve.

A is correct option.

Rahul Sunny answered 1 year ago

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