According to liquidity preference theory, how are the price level and the interest rate related?
A)positively
B)inversely
C)negatively
D)unrelated

Question

Quizplus · Accepted Answer

According to liquidity preference theory, the price level and the interest rate are inversely related. This is because when the price level rises, people demand more money to hold in order to maintain their real wealth. This increased demand for money drives up the interest rate.

According to Liquidity Preference Theory, How Are the Price Level