In the liquidity-preference model,
A)both the nominal interest rate and the price level in the economy are exogenous variables.
B)both the nominal interest rate and the price level in the economy are endogenous variables.
C)the nominal interest rate is an exogenous variable, while the price level in the economy is an endogenous variable.
D)the nominal interest rate is an endogenous variable, while the price level in the economy is an exogenous variable.

Question

Quizplus · Accepted Answer

In the liquidity-preference model, the nominal interest rate is determined endogenously through the interaction of the money supply and demand, while the price level in the economy is set exogenously by factors such as government policy, productivity growth, and international trade. Therefore, the correct answer is D, as the nominal interest rate is an endogenous variable and the price level is an exogenous variable in this model.

In the Liquidity-Preference Model