The liquidity preference theory emphasizes

Question

Quizplus · Accepted Answer

The liquidity preference theory emphasizes the sensitivity of money demand to changes in interest rates. According to this theory, the demand for money depends on the opportunity cost of holding it. When interest rates are high, the opportunity cost of holding money is high, so people hold less money and demand for money is low. Conversely, when interest rates are low, the opportunity cost of holding money is low, so people hold more money and demand for money is high.

The Liquidity Preference Theory Emphasizes