According to liquidity-preference theory, if the price level increases, in which direction does the demand curve shift, and how does the interest rate change?
A) The demand curve shifts right, so the interest rate increases.
B) The demand curve shifts right, so the interest rate decreases.
C) The demand curve shifts left, so the interest rate decreases.
D) The demand curve shifts left, so the interest rate increases.

Question

Quizplus · Accepted Answer

When the price level increases, people need more money for transactions, which increases the demand for money. According to liquidity-preference theory, this shifts the demand curve for money to the right, leading to a higher interest rate.

According to Liquidity-Preference Theory, If the Price Level Increases, in Which