Which of the following principles does the theory of liquidity preference illustrate?
A)Monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)Monetary policy can be described either in terms of the exchange rate or the interest rate.
C)Monetary policy must be described in terms of the money supply.
D)Monetary policy must be described in terms of the interest rate.

Question

Quizplus · Accepted Answer

The theory of liquidity preference, proposed by Keynes, suggests that monetary policy can be described in terms of either the money supply or the interest rate, as both are interrelated in determining equilibrium in the money market.

Which of the Following Principles Does the Theory of Liquidity