What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?
A) the interest rate in both theories
B) the price level in both theories
C) the interest rate in the liquidity-preference theory and the price level in the classical theory
D) the price level in the liquidity-preference theory and the interest rate in the classical theory

Question

Quizplus · Accepted Answer

In the liquidity-preference theory, the interest rate balances money demand and supply by adjusting to equate the quantity of money people want to hold with the quantity available. In the classical theory, the price level adjusts to balance money demand and supply, as changes in the price level affect the real money supply and demand.

What Is the Variable That Balances the Money Demand and Supply