According to liquidity preference theory,an increase in the price level causes the interest rate to
A)increase,which increases the quantity of goods and services demanded.
B)increase,which decreases the quantity of goods and services demanded.
C)decrease,which increases the quantity of goods and services demanded.
D)decrease,which decreases the quantity of goods and services demanded.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, an increase in the price level raises the demand for money, leading to higher interest rates. Higher interest rates make borrowing more expensive, which decreases the quantity of goods and services demanded.

According to Liquidity Preference Theory,an Increase in the Price Level