According to liquidity preference theory, other things equal, a higher price level leads households to do which of the following in the short run?
A)increase consumption
B)decrease the amount of cash they want to hold
C)buy bonds
D)decrease consumption

Question

Quizplus · Accepted Answer

According to liquidity preference theory, a higher price level increases the demand for money as people need more cash for transactions, leading to higher interest rates. This discourages consumption and investment, resulting in decreased consumption in the short run.

According to Liquidity Preference Theory, Other Things Equal, a Higher