According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded the interest rate will
A)increase and the quantity of money demanded will decrease.
B)increase and the quantity of money demanded will increase.
C)decrease and the quantity of money demanded will decrease.
D)decrease and the quantity of money demanded will increase.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, if the money supply exceeds money demand, there is excess money in the economy, leading to a decrease in interest rates. As interest rates fall, the quantity of money demanded increases because people are more willing to hold money rather than invest it at lower returns.

According to Liquidity Preference Theory,if the Quantity of Money Supplied