According to which theory do changes in the interest rate bring the money market into equilibrium?
A) purchasing-power parity theory
B) the quantity theory of money
C) liquidity-preference theory
D) the real business cycles theory

Question

Quizplus · Accepted Answer

Changes in the interest rate are explained by the liquidity-preference theory, which states that the demand for money is determined by individuals' desire to hold liquid assets, and that the interest rate adjusts to bring the money market into equilibrium.

According to Which Theory Do Changes in the Interest Rate