In recessions, according to the liquidity-preference model, the decline in______leads to_____in the equilibrium nominal interest rate.
A)money supply; an increase
B)money supply; a decline
C)money demand; a decline
D)money demand; an increase

Question

In recessions, according to the liquidity-preference model, the decline in______leads to_____in the equilibrium nominal interest rate. 
A)money supply; an increase
B)money supply; a decline
C)money demand; a decline
D)money demand; an increase

Quizplus · Accepted Answer

In the liquidity-preference model, a decline in money demand, due to lower investment and consumption in recessions, leads to a decline in the equilibrium nominal interest rate as people hold less money and more bonds, pushing down interest rates.

In Recessions, According to the Liquidity-Preference Model, the Decline In______leads