Different theories of the interest rate are useful for different purposes. When thinking about the long-run determinants of interest rates, it is best to keep in mind:
A) the loanable funds theory.
B) the liquidity preference theory.
C) the classical economic theory.
D) the price level theory.

Question

Quizplus · Accepted Answer

The loanable funds theory is most useful for understanding the long-run determinants of interest rates, as it focuses on the interaction of the supply and demand for funds over time. The liquidity preference theory is more useful for understanding short-term fluctuations in interest rates based on changes in individuals' preferences for money holdings. The classical economic theory and the price level theory are not as directly related to understanding the determinants of interest rates.

Different Theories of the Interest Rate Are Useful for Different