According to the liquidity-preference theory,equilibrium in the money market is achieved by adjustments in which of the following?
A) price level
B) interest rate
C) exchange rate
D) expenditure

Question

Quizplus · Accepted Answer

According to the liquidity-preference theory, equilibrium in the money market is achieved by adjustments in the interest rate. As the demand for money increases, the interest rate must increase to encourage people to supply more money, and vice versa. Adjustments in price level, exchange rate, and expenditure may affect the demand for money, but they are not the primary factors in achieving equilibrium in the money market according to this theory.

According to the Liquidity-Preference Theory,equilibrium in the Money Market Is