In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?
A) planned spending
B) the interest rate
C) production
D) the price level

Question

Quizplus · Accepted Answer

According to the liquidity preference model, the interest rate adjusts to move the money market to equilibrium following a change in the money supply. An increase in the money supply leads to a decrease in the interest rate, while a decrease in the money supply leads to an increase in the interest rate. This adjustment in the interest rate helps to match the quantity of money demanded with the quantity of money supplied, bringing the money market back to equilibrium. The other choices, such as planned spending, production, and price level, are not directly related to the liquidity preference model and do not play a role in the adjustment process.

In the Liquidity Preference Model, What Adjusts to Move the Money