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1 April, 16:59

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

a. increase and the quantity of money demanded will decrease.

b. increase and the quantity of money demanded will increase.

c. decrease and the quantity of money demanded will decrease.

d. decrease and the quantity of money demanded will increase.

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Answers (1)
  1. 1 April, 18:09
    0
    The correct answer is option A.

    Explanation:

    Liquidity preference theory was given by J. M Keynes. He states that money is demanded by people because it holds certain liquidity.

    There are various motives involved for which people prefer liquidity. These motive are precautionary, transactionary and speculative motives respectively.

    When the demand for money is more than supply, it means there is excessive demand. This excess demand will lead to increase in the interest level. At higher interest, the quantity of money demanded will fall.
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Home » Business » According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will a. increase and the quantity of money demanded will decrease. b.
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