According to liquidity preference theory, when do people demand fewer goods and services?
A) when the price level or interest rate increase
B) when the price level or interest rate decrease
C) when the price level increases or the interest rate decreases
D) when the price level decreases or the interest rate increases

Question

Quizplus · Accepted Answer

According to liquidity preference theory, people demand fewer goods and services when the interest rates increase, as holding money becomes more attractive compared to investing in bonds or other assets. This decrease in demand for goods and services leads to a decrease in prices. Similarly, an increase in the price level also increases the demand for money and leads to a decrease in the demand for goods and services. Therefore, the correct option is when the price level or interest rate increase (option A).

According to Liquidity Preference Theory, When Do People Demand Fewer