According to liquidity preference theory, when would the money supply curve shift right?
A)if the money demand curve shifted right
B)only if the Bank of Canada chose to increase the money supply
C)if the interest rate increased
D)if the price level fell or the interest rate decreased

Question

Quizplus · Accepted Answer

According to the liquidity preference theory, the money supply curve is vertical in the short run and determined by the Bank of Canada's policy. Therefore, the money supply curve can only shift right if the Bank of Canada chooses to increase the money supply. Changes in the money demand curve or interest rate may affect the equilibrium quantity of money but would not shift the money supply curve. A fall in the price level may lead to a shift in the money demand curve but would not affect the money supply curve.

According to Liquidity Preference Theory, When Would the Money Supply