The theory of liquidity preference states that, other things being equal, an increase in the real money supply will:
A)lower the interest rate.
B)raise the interest rate.
C)have no effect on the interest rate.
D)first lower and then raise the interest rate.

Question

Quizplus · Accepted Answer

An increase in the real money supply, according to the theory of liquidity preference, leads to a lower interest rate as people have more money to lend, increasing the supply of loanable funds.

The Theory of Liquidity Preference States That, Other Things Being