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.

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 2 years ago

Explain the Keynes’s Liquidity Preference Theory of money demand

The demand for money is one of the most important concepts in the Liquidity Preference Theory...

The demand for money is one of the most important concepts in the Liquidity Preference Theory of Interest. What are the three main components of the demand for money in this idea about how interest rates are determined?

According to liquidity preference theory,a. an increase in the price level reduces the quantity of money...

According to liquidity preference theory,a. an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward.b. an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right.c. an increase in the interest rate increases the quantity...

According to the theory of liquidity preference, the opportunity cost of holding money rises when the...

According to the theory of liquidity preference, the opportunity cost of holding money rises when the interest rate rises, so people desire to hold more of it. Select one: True False In the long run, changes in government spending can affect prices, output, and unemployment rates if the spending programs alter the availability of natural resources, capital equipment or technology Select one: True False According to liquidity preference theory, the money supply curve is vertical because the Fed can dictate...

Using Keynes liquidity preference theory, explain the link of demand for money with economic variables?

According to the liquidity preference model: A. an increase in the money supply lowers the equilibrium...

According to the liquidity preference model: A. an increase in the money supply lowers the equilibrium rate of interest. B. the demand for money curve is a vertical line. C. the money supply curve is a horizontal line. D. a decrease in the money supply lowers the equilibrium rate of interest. A price floor or a price ceiling is an example of: A. market equilibrium price. B. a quota. C. a price control. D. a quantity control.

Explain the critically discuss liquidity preference theory of interest. Can interest rate by zero. Give reason...

Explain the critically discuss liquidity preference theory of interest. Can interest rate by zero. Give reason for your answer.

What is the quantity theory of Money Demand ? What determines the demand for money, according...

What is the quantity theory of Money Demand ? What determines the demand for money, according to this theory? What potential determinants of money demand does the quantity theory leave out? Explain. In our alternative formulation of money demand, explain what happens when there is an excess demand for money: what will change, and how, to eliminate the excess demand?

2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the...

2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. After the increase in the...

Keynesian Liquidity Preference Theory of Interest in Economics.

What is Keynesian Liquidity Preference Theory of Interest in Economics? Illustrate in detail. Critically explain this Liquidity Preference Theory of Interest .

Question