In the simple liquidity preference model, changes to the money supply will have a smaller effect on interest rates the:
A) flatter, more elastic is the money demand curve.
B) flatter, less elastic is the money demand curve.
C) steeper, more elastic is the money demand curve.
D) steeper, less elastic is the money demand curve.

Question

Quizplus · Accepted Answer

In the liquidity preference model, a flatter (more elastic) money demand curve means that changes in the money supply will lead to smaller changes in interest rates, as people are more responsive to changes in interest rates.

In the Simple Liquidity Preference Model, Changes to the Money