Which theory is the most appropriate to analyze the effects of interest rate changes in the short run?
A)the aggregate-demand and aggregate-supply theory
B)the classical theory
C)the liquidity-preference theory
D)the purchasing-power parity theory

Question

Quizplus · Accepted Answer

The liquidity-preference theory suggests that the demand for money is the main determinant of interest rates in the short run, and changes in interest rates affect economic decisions such as investment and consumption. Therefore, it is the most appropriate theory to analyze the effects of interest rate changes in the short run. The other options are not as directly related to interest rate changes in the short run.

Which Theory Is the Most Appropriate to Analyze the Effects