According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:
A) sell interest-earning assets in order to obtain non-interest-bearing money.
B) purchase interest-earning assets in order to reduce holdings of non-interest-bearing money.
C) purchase more goods and services.
D) be content with their portfolios.

Question

Quizplus · Accepted Answer

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will seek to reduce their holdings of non-interest-bearing money by purchasing interest-earning assets such as bonds, stocks, or certificates of deposit. This is because people prefer to hold assets that earn some kind of return rather than holding onto non-interest-bearing money that loses value over time due to inflation. Thus, purchasing interest-earning assets is the best option for individuals in this situation.

According to the Theory of Liquidity Preference, If the Supply