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13 December, 10:19

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a. the price level

b. the interest rate

c. real wealth

d. the exchange rate.

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  1. 13 December, 11:51
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    Answer:The correct option is 'd': The interest rate.

    Explanation:

    According to Liquidity preference theory money is considered as 'liquid' meaning that liquidity preference is the demand for money.

    According to this theory if our investments are more liquid then we ought to cash in for full value as cash is often accepted as most liquid asset.

    Thus the liquidity of cash can be controlled by adjusting the interest rates as equilibrium in the money markets is achieved when the demand equals the supply.
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