The liquidity preference function shows that as ________.
A)real income decreases,so does the demand for real money balances
B)the nominal interest rate increases,so does the demand for real money balances
C)real income decreases,so does the real interest rate
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The liquidity preference function shows that as real income decreases, people demand less real money balances. This is because as people's incomes decrease, they have less money to spend and therefore need less money for transactions. This is reflected in the downward-sloping nature of the function. The other options presented are incorrect as they do not accurately reflect the liquidity preference function.

The Liquidity Preference Function Shows That as ________