According to the theory of liquidity preference,
A)an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand to the right.
B)an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the price level shifts money demand leftward.
C)an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand rightward.
D)an increase in the price level increases the quantity of money demanded.This is shown as a movement along the money-demand curve.An increase in the interest rate shifts money demand leftward.

Question

Quizplus · Accepted Answer

The theory of liquidity preference suggests that higher interest rates make holding money less attractive, so the quantity of money demanded decreases, which is represented by a movement along the money-demand curve. Additionally, an increase in the price level means more money is needed for transactions, shifting the money demand curve to the right.

According to the Theory of Liquidity Preference