Which theory is the most appropriate to analyze the effects of interest rate changes in the short run?
A) the aggregate-demand and aggregate-supply theory
B) the classical theory
C) the liquidity-preference theory
D) the general theory of employment

Question

Quizplus · Accepted Answer

The liquidity-preference theory, developed by John Maynard Keynes, argues that interest rates are determined by the demand and supply of money. In the short run, changes in interest rates primarily affect investment and consumption, which can impact aggregate demand and output. Therefore, the liquidity-preference theory is the most appropriate to analyze the effects of interest rate changes in the short run.

Which Theory Is the Most Appropriate to Analyze the Effects